6-K 1 d607107d6k.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, 2013

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)

 

 

Paseo de la Castellana, 81

28046 Madrid

Spain

(Address of principal executive offices)

Ricardo Gómez Barredo

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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BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

TABLE OF CONTENTS

 

Certain Terms and Conventions

   1

Cautionary Statement Regarding Forward-Looking Statements

   1

Presentation of Financial Information

   2

Selected Consolidated Financial Data

   4

Business Overview

   7

Selected Statistical Information

   12

Operating and Financial Review and Prospects

   30

Other Information

   56

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. 333-190136) 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 BBVA 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, 2013 and for the six months ended June 30, 2013 and 2012 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:

 

    “Business Overview”,


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    “Selected Statistical Information” and

 

    “Operating and Financial Review and Prospects”

identifies important factors that could cause such differences.

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

 

    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;

 

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

 

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

 

    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;

 

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

 

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

 

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

 

    our ability to hedge certain risks economically;

 

    downgrades in our credit ratings, including as a result of a decline in the Kingdom of Spain’s credit ratings;

 

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

 

    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

 

    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 or acquisition 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.

 

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The Group has implemented the new accounting standards set out in IFRS 10 and 11 since January 1, 2013. The impact of the implementation of IFRS 10 has been not material. Under the new standard set forth by IFRS 11, which supersedes SIC 13 “Jointly Controlled Entities” and IAS 31 “Interest in Joint Ventures”, it is no longer possible to use the proportionate consolidation method to account for joint arrangements. As a result, joint arrangements must be accounted for using the equity method. Accordingly, Türkiye Garanti Bankası AŞ. (“Garanti”) and entities of the Garanti group are from January 1, 2013 accounted for using the equity method, whereas they were accounted for under the proportionate consolidation method prior to such date. This change affects various line items in our consolidated income statement and balance sheet but has no impact on our total equity or profit attributed to parent company. In order to present financial information on a consistent basis, the balance sheet information as of December 31, 2012 (unaudited) and June 30, 2012 (unaudited) and the income statement information for the six months ended June 30, 2012 (unaudited) and 2011 (unaudited) included in this report, have been recast as if such standards had been applicable as of such dates and the beginning of such periods, respectively. Columns in tables that present recast financial information show an “R” behind the relevant column header.

While changes to IFRS 12 and IAS 19 also came into force in 2013, we have not recast our consolidated financial statements to reflect these changes, as the impact of the implementation of these new accounting standards has not been material for the Group.

In addition, our financial information by operating segment has been recast to reflect our current reporting structure. As a result of the business segment restructuring carried out in 2013, the assets and results pertaining to the real estate business in Spain are now presented under a separate segment, Real Estate Activity in Spain. The creation of this new segment has affected our Spain operating segment and the Corporate Center (formerly, Corporate Activities). In accordance with IFRS 8, the analysis of the Eurasia business segment follows management criteria, which includes 25.01% of the assets, liabilities and income statement of Garanti.

This report should be read in conjunction with the Company’s report on Form 6-K filed with the Securities and Exchange Commission (“SEC”) on October 4, 2013 which contains, among other information, our recast audited consolidated financial statements as of and for the years ended December 31, 2012 and 2011, and our annual report for the year ended December 31, 2012 on Form 20-F filed with the SEC on April 2, 2013.

The Interim Consolidated Financial Statements have been presented in a format which differs from that required by the SEC for the consolidated financial statements of bank holding companies.

Operating segments

As mentioned in Note 6 to our Interim Consolidated Financial Statements, there have been some changes in the reporting structure of the BBVA Group’s operating segments in 2013 in order to reflect the increasingly geographical orientation of the Group’s reporting structure. Consequently, certain portfolios, finance and structural Euro balance sheet positions managed by the Assets and Liabilities Committee (“ALCO”) that were previously reported under our Corporate Activities segment (which is currently denominated the ‘Corporate Center’) are now part of our Banking Activity in Spain operating segment.

In addition, because of the particular nature of their management, the assets and results pertaining to the real estate business in Spain are presented separately under a separate segment: Real Estate Activity in Spain. This covers lending to real estate developers (previously integrated in our former Spain segment) and foreclosed real estate assets which were included in Corporate Activities in the years prior to 2013.

Nevertheless, operating segments data relating to June 30, 2012 and December 31, 2012 contained in this report has been presented on a uniform basis consistent with our organizational structure in 2013 to ensure like-for-like comparisons (see “Business Overview”).

 

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Statistical and Financial Information

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

 

    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.

 

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

 

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

 

    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.

 

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

 

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

Selected Consolidated Financial Data

The historical financial information set forth below for the six months ended June 30, 2013 and 2012 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”.

 

     Six Months Ended
June 30,
 
     2013     2012R     Change  
     (In Millions of Euros, Except Per Share/ADS Data
(In Euros))
 

Consolidated Statement of Income Data

      

Interest and similar income

     11,831        12,069        (2.0 )% 

Interest and similar expenses

     (4,932     (5,008     1.5

Net interest income

     6,899        7,061        (2.3 )% 

Dividend income

     65        337        (80.7 )% 

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

     407        542        (24.9 )% 

Fee and commission income

     2,692        2,544        5.8

Fee and commission expenses

     (611     (512     (19.3 )% 

Net gains (losses) on financial assets and liabilities

     794        724        9.7

Net exchange differences

     515        23        n.m. (*) 

Other operating income

     2,554        2,831        (9.8 )% 

Other operating expenses

     (2,711     (2,741     1.1

Administration costs

     (4,833     (4,522     (6.9 )% 

Depreciation and amortization

     (535     (445     (20.2 )% 

Provisions (net)

     (273     (228     (19.7 )% 

Impairment losses on financial assets (net)

     (2,635     (3,235     18.5

Impairment losses on other assets (net)

     (214     (269     20.4

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

     693        21        n.m. (*) 

Negative goodwill

     —          —          —     

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

     (309     (287     (7.7 )% 

Operating profit before tax

     2,498        1,844        35.5

Income tax

     (601     (183     (228.4 )% 

Profit from continuing operations

     1,897        1,661        14.2

Profit from discontinued operations (net)

     1,393        171        n.m. (*) 

Profit

     3,290        1,832        79.6

Profit attributed to parent company

     2,882        1,510        90.9

Profit attributed to non-controlling interests

     408        322        26.7

Per share/ADS(1) Data

      

Numbers of shares outstanding (at period end)

     5,724,326,491        5,382,108,140     

Income attributed to parent company(2)

     0.51        0.28     

Dividends declared

     0.100        0.100     

 

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(*) Not meaningful
(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 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 April and October 2012 and April 2013, and excluding the weighted average number of treasury shares during the period (5,641 million and 5,556 million shares for the six months ended June 30, 2013 and 2012, respectively). See Note 5 to the Interim Consolidated Financial Statements.

 

   

As of and for the
Six Months

Ended June 30

2013

    As of and for the
Year Ended
December
2012R
   

As of and for the
Six Months

Ended June 30
2012R

 
    (In Millions of Euros, Except Percentages)  

Consolidated balance sheet data

     

Total assets

    600,997        621,072        605,922   

Common stock

    2,805        2,670        2,637   

Loans and receivables (net)

    369,050        371,347        378,716   

Customer deposits

    301,508        282,795        263,475   

Debt certificates and subordinated liabilities

    89,606        98,070        89,247   

Non-controlling interest

    2,205        2,372        2,100   

Total equity

    47,398        43,802        43,050   

Consolidated ratios

     

Profitability ratios:

     

Net interest margin(1)

    2.3     2.4     2.4

Return on average total assets(2)

    1.1     0.4     0.6

Return on average equity(3)

    13.2     4.0     7.4

Credit quality data

     

Loan loss reserve(4)

    14,393        14,159        10,259   

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

    3.9     3.8     2.7

Non-performing asset ratio (NPA ratio)(5)

    5.7     5.2     4.0

Impaired loans and advances to customers

    21,463        19,960        15,983   

Impaired contingent liabilities to customers(6)

    403        312        234   
 

 

 

   

 

 

   

 

 

 
    21,866        20,272        16,216   
 

 

 

   

 

 

   

 

 

 

Loans and advances to customers

    352,738        356,278        357,980   

Contingent liabilities to customers

    33,999        36,891        37,637   
 

 

 

   

 

 

   

 

 

 
    386,737        393,169        395,617   
 

 

 

   

 

 

   

 

 

 

 

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(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, 2013 and 2012, respectively, net interest income is annualized by multiplying the net interest income for the period by two.
(2) Represents profit attributed to parent company as a percentage of average total assets. In order to calculate “Return on average total assets” for the six months ended June 30, 2013 and 2012, respectively, profit attributed to parent company is annualized by multiplying the profit attributed to parent company for the period by two.
(3) Represents profit 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, 2013 and 2012, respectively, profit attributed to parent company is annualized by multiplying the profit attributed to parent company for the period by two.
(4) Includes impairment losses on loans and receivables to credit institutions, loans and advances to customers and debt securities. See Note 13 to the Interim Consolidated Financial Statements.
(5) Represents the sum of impaired loans and advances to customers and impaired contingent liabilities to customers divided by the sum of loans and advances to customers and contingent liabilities to customers.
(6) We include contingent liabilities in the calculation of our non-performing asset ratio (NPA ratio). We believe that impaired 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 impaired 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 6.2% as of June 30, 2013, 5.7% as of December 31, 2012, and 4.5% as of June 30, 2012.

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)  

2008

     1.4695   

2009

     1.3955   

2010

     1.3216   

2011

     1.4002   

2012

     1.2908   

2013 (through September 27, 2013)

     1.3174   

 

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

 

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Month ended

   High      Low  

March 31, 2013

     1.3098         1.2782   

April 30, 2013

     1.3168         1.2836   

May 31, 2013

     1.3192         1.2818   

June 30, 2013

     1.3407         1.3006   

July 31, 2013

     1.3282         1.2774   

August 31, 2013

     1.3426         1.3196   

September 30, 2013 (through September 27, 2013)

     1.3537         1.3120   

The noon buying rate for Euro from the Federal Reserve Bank of New York, expressed in dollars per €1.00, on September 27, 2013, was $1.3537.

As of June 30, 2013, approximately 39% 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.

Operating Segments

The main changes in the reporting structure of the BBVA Group’s operating segments in the six months ended June 30, 2013 are as follows:

 

    As a result of the increasingly geographical orientation of the Group’s reporting structure, certain portfolios, finance and structural Euro balance sheet positions managed by the Assets and Liabilities Committee (ALCO) that were previously reported under our Corporate Activities segment (which is currently denominated the ‘Corporate Center’ segment) are now part of our Banking Activity in Spain segment (which is described below).

 

    Due to the particularities of their management, the assets and results pertaining to the real estate business in Spain are now presented under a separate segment: Real estate Activity in Spain. This new segment includes lending to real estate developers (which was previously included in our former Spain segment) and foreclosed real estate assets (which were previously included in our Corporate Activities segment).

As a result, our current operating segments are as follows:

 

    Banking Activity in Spain “Spain”)

 

    Real Estate Activity in Spain

 

    Eurasia

 

    Mexico

 

    South America

 

    United States

 

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In addition to the operating segments referred to above, we have a Corporate Center which includes those items that have not been allocated to an operating segment. It includes our general management functions, including: costs from central units that have a strictly corporate function; management of structural exchange-rate positions carried out by the Financial Planning unit; specific issues of capital instruments to ensure an adequate management of the Group’s global solvency; proprietary portfolios, such as industrial holdings, and their corresponding results; certain tax assets and liabilities; provisions related to commitments with pensioners; goodwill and other intangibles. It also included BBVA Puerto Rico prior to its sale, which was completed in December 2012.

Nevertheless, operating segments data relating to the six months ended June 30, 2012 and as of December 31, 2012 contained in this report has been presented on a uniform basis consistent with our organizational structure in 2013 to ensure like-for-like comparisons.

The breakdown of the BBVA Group’s total assets by operating segments as of June 30, 2013 and December 31, 2012 is as follows:

 

Total Assets by Operating Segment   As of June 30, 2013     As of December 31, 2012 R  
    (In Millions of Euros)  

Spain

    328,022        345,362   

Real Estate Activity in Spain

    21,864        21,923   

Eurasia

    47,327        48,324   

Mexico

    82,692        81,723   

South America

    74,972        77,474   

United States

    54,544        53,892   
 

 

 

   

 

 

 

Subtotal Assets of Operating Segments

    609,421        628,698   
 

 

 

   

 

 

 

Corporate Center and other adjustments

    (8,424     (7,626
 

 

 

   

 

 

 

Total Assets BBVA Group

    600,997        621,072   
 

 

 

   

 

 

 

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, 2013 and 2012, respectively:

 

     Profit/(Loss) Attributed to Parent
Company
    % Profit/(Loss)
Attributed to Parent
Company
 
     Six months ended June 30,  
     2013     2012R     Change     2013     2012R  
     (In Millions of Euros)     2013-2012     (In Percentage)  

Spain

     742        783        (5.2 )%      25.7        51.8   

Real Estate Activity in Spain

     (629     (1,427     55.9     (21.8     (94.5

Eurasia

     429        579        (25.9 )%      14.9        38.3   

Mexico

     876        822        6.6     30.4        54.4   

South America

     561        629        (10.8 )%      19.5        41.6   

United States

     213        233        (8.6 )%      7.4        15.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal Operating Segments

     2,192        1,619        35.4     76.1        107.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Corporate Center and other adjustments

     690        (109     n.m. (1)      23.9        (7.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit Attributed to Parent Company

     2,882        1,510        90.8     100.00        100.00   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Not meaningful

 

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Spain

The operating segment of Spain includes all of BBVA’s banking and non-banking businesses in Spain, other than those included in our Corporate Center and Real Estate Activity in Spain. The main business units included in this operating segment 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 small and medium sized enterprises, companies and corporations, public institutions and developer segments.

 

    Corporate and Investment Banking (C&IB): which includes business with large corporations and multinational groups and the trading floor and distribution business in Spain.

 

    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. In addition, it includes certain portfolios, finance and structural Euro balance sheet positions as described above.

The following table sets forth information relating to the activity of this operating segment as of June 30, 2013 and December 31, 2012:

 

Spain    As of June 30,
2013
     As of December 31,
2012R
 
     (In Millions of Euros)  

Total Assets

     328,022         345,362   

Loans and advances to customers

     192,187         193,100   

Customer deposits

     144,468         133,802   

Mutual funds

     19,651         19,116   

Pension funds

     19,272         18,577   

Economic capital allocated

     10,928         12,027   

NPA ratio (%)

     4.7         4.1   

As of June 30, 2013, the balance of loans and advances to customers was €192,187 million, 0.5% lower than the €193,100 million posted as of December 31, 2012.

As for the asset quality of BBVA’s portfolio in Spain, the NPA ratio as of June 30, 2013 was 4.7%, compared to 4.1% as of December 31, 2012. This is due to the difficult economic situation in the country and the deleveraging process underway. The coverage ratio (defined as loan loss reserve divided by total impaired loans) as of June 30, 2013 was 43% compared to 48% as of December 31, 2012.

Customer deposits stood at €144,468 million as of June 30, 2013, 8.0% higher than as of December 31, 2012, as a result of the positive performance of time deposits held by households and companies due to our strong distribution network and its customer-centric management model based on long lasting customer relationships.

With respect to off-balance sheet assets, mutual funds totaled €19,651 million as of June 30, 2013, 2.8% higher than the €19,116 million recorded as of December 31, 2012. Pension funds, amounted to €19,272 million as of June 30, 2013, 3.7% higher than the €18,577 million recorded as of December 31, 2012.

 

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The economic capital allocated was €10,928 million as of June 30, 2013, a 9.1% decrease from the €12,027 million recorded as of December 31, 2012. This decrease was mainly related to the recalibration of our internal model in mid-2012 based on backtesting results.

Real Estate Activity in Spain

This new segment has been set up with the aim of providing specialized and structured management of the real estate assets accumulated by the Group in Spain as a result of the economic crisis in such country. It includes mainly lending to real estate developers (which was previously included in our Spain segment) and foreclosed real estate assets (which were previously included in our Corporate Center).

This operating segment had total assets of €21,864 million as of June 30, 2013, compared to €21,923 million as of December 31, 2012. As of June 30, 2013, loans and advances to customers amounted to €11,508 million, while customer deposits amounted to €155 million.

Eurasia

This operating segment 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 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 equity-accounting holdings in Garanti, China CITIC Bank Corporation Limited (“CNCB”) and CITIC International Financial Holding Ltd. (“CIFH”).

In accordance with IFRS 8, the analysis of the Eurasia business segment follows management criteria, which includes 25.01% of the assets, liabilities and income statement of Garanti.

The following table sets forth information relating to the business activity of this operating segment as of June 30, 2013 and December 31, 2012:

 

Eurasia    As of June 30,
2013
     As of December 31,
2012R
 
     (In Millions of Euros)  

Total Assets

     47,327         48,324   

Loans and advances to customers

     30,167         30,228   

Customer deposits

     16,510         16,484   

Off-balance sheet funds

     2,022         2,016   

Economic capital allocated

     4,598         4,607   

NPA ratio (%)

     3.0         2.8   

As of June 30, 2013, the balance of loans and advances to customers stood at €30,167 million, down 0.2% on the €30,228 million posted as of December 31, 2012. The decrease was mainly due to the reduced loan portfolio with wholesale clients due to the deleveraging process under way in Europe and the exchange rate impact of the depreciation of the Turkish Lira. This decrease was partially offset by lending activity in the retail business in Turkey, which increased by 17.3% in the six months ended June 30, 2013.

As of June 30, 2013, customer deposits stood at €16,510 million, in line with the €16,484 million as of December 31, 2012.

The economic capital allocated was €4,598 million as of June 30, 2013, up from the €4,607 million recorded as of December 31, 2012.

Mexico

Following the sale of our Mexican pension business in the six months ended June 30, 2013, our Mexico operating segment currently includes our banking and insurance businesses in Mexico. The banking business includes retail business, through our Commercial Banking, Consumer Finance and Corporate and Institutional Banking units, and wholesale banking, through Corporate & Investment Banking (CIB).

 

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The following table sets forth information relating to the business activity of this operating segment as of June 30, 2013 and December 31, 2012:

 

Mexico    As of June 30,
2013
     As of December 31,
2012R
 
     (In Millions of Euros)  

Total Assets

     82,692         81,723   

Loans and advances to customers

     40,343         39,052   

Customer deposits(*)

     42,329         40,404   

Off-balance sheet funds

     17,958         17,492   

Economic capital allocated

     4,595         4,912   

NPA ratio (%)

     4.0         3.7   

 

(*) Includes repos

As of June 30, 2013, the balance of loans and advances to costumers stood at €40,343 million, up 3.3% on the €39,052 million at December 31, 2012.

Customer deposits as of June 30, 2013 amounted to €42,329 million, a 4.8% increase compared to €40,404 million as of December 31, 2012. This increase was attributable in part to an increase in demand deposits in the retail segment. Such increase was partially offset by a 4.1% decline in time deposits, due in part to our customers’ switch from time deposits to mutual funds and investment portfolios, which rose by 4.0% in the first half of 2013 to €17,958 million as of June 30, 2013.

The balance at June 30, 2013 of off balance sheet funds (includes mutual funds, pension funds and managed portfolios of clients) amounted to €17,958 million with a growth of 2.7% from €17,492 million at December 31, 2012.

The economic capital allocated was €4,595 million as of June 30, 2013, a 6.5% decrease from the €4,912 million recorded as of December 31, 2012, as a result of an increase in volume of loans with lower risk.

South America

South America currently includes the banking and insurance businesses that BBVA carries out in the region. Prior to 2013, this segment also included our pension business in the region. At the close of the six months ended June 30, 2013, the Group had signed an agreement for the sale of our pension business in Chile (this sale has closed in early October 2013.) and in April 2013 we closed the sale of our pension businesses in Colombia and Peru. For presentation purposes, these pension businesses are included in the Corporate Center.

The following table sets forth information relating to the business activity of this operating segment as of June 30, 2013 and December 31, 2012:

 

South America    As of June 30,
2013
     As of December 31,
2012R
 
     (In Millions of Euros)  

Total Assets

     74,972         77,474   

Loans and advances to customers

     46,548         48,721   

Customer deposits

     55,560         56,933   

Off-balance sheet funds

     6,348         6,436   

Economic capital allocated

     3,151         3,169   

NPA ratio (%)

     2.2         2.1   

 

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As of June 30, 2013, loans and advances to costumers stood at €46,548 million, down 4.5% on the €48,721 million recorded as of December 31, 2012 due to decreased activity in the retail segment mainly in consumer finance and credit cards.

Customer deposits as of June 30, 2013 were €55,560 million, a 2.4% decrease compared to December 31, 2012, mainly due to the decrease of current and savings accounts.

Off-balance sheet funds stood at €6,348 million, a 1.4% decrease compared to December 31, 2012, as a result of the 10% decrease in mutual funds. This decrease was partially offset by the growth of our pension business, which represented 52% of our off-balance sheet funds as of June 30, 2013 and grew by 8% in the first half of 2013 due in part to the exchange rate impact

The economic capital allocated was €3,151 million as of June 30, 2013, compared to the €3,169 million recorded as of December 31, 2012.

United States

This operating segment encompasses the Group’s business in the United States. Until December 2012, this operating segment also included the Group’s business in Puerto Rico, the sale of which was closed in December 2012. The financial information included in this report for the six months ended June 30, 2012 for our United States segment does not include the business in Puerto Rico (such business has been included in the Corporate Center for such six-month period).

 

The United States    As of June 30,
2013
     As of December 31,
2012R
 
     (In Millions of Euros)  

Total Assets

     54,544         53,892   

Loans and advances to customers

     38,219         36,892   

Customer deposits

     39,380         37,721   

Economic capital allocated

     2,690         2,638   

NPA ratio (%)

     1.5         2.4   

As of June 30, 2013, loans and advances to customers were €38,219 million, a 3.6% increase compared to the 36,892 million recorded as of December 31, 2012. Lending growth in the six months ended June 30, 2013 has been balanced across all portfolios, except for loans to developers (real estate and construction) which continue to decline as planned. Commercial loans, consumer finance, credit cards and residential mortgages have increased throughout the first half of 2013.

As of June 31, 2013, customer deposits were €39,380 million, a 4.4% increase compared to the €37,721 million recorded as of December 31, 2012. Of this amount, 76.5% corresponded to lower-cost deposits (current and savings accounts), which have seen the biggest rise.

The economic capital allocated was €2,690 million as of June 30, 2013, a 2.0% increase from the €2,638 million allocated as of December 31, 2012.

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.

 

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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  
     Six Months ended June 30, 2013     Six Months ended June 30, 2012R  
     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

     27,545         142         1.04     21,940         111         1.02

Debt securities, equity instruments and derivatives

     169,602         2,191         2.61     158,610         2,115         2.68

Loans and receivables

     366,899         9,433         5.14     365,901         9,754         5.33

Loans and advances to credit institutions

     26,194         201         1.55     24,487         230         1.89

Loans and advances to customers

     340,705         9,232         5.46     341,414         9,524         5.61

In Euros(2)

     210,125         3,186         3.06     213,626         3,688         3.47

In other currencies(3)

     130,580         6,046         9.34     127,788         5,835         9.18

Other finance income

     —           —           —          —           —           —     

Non-earning assets

     46,213         65         0.28     41,482         89         0.43
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total average assets

     610,259         11,831         3.91     587,933         12,069         4.13
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

(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.

 

     Average Balance Sheet -
Liabilities and Interest Paid on Interest Bearing Liabilities
 
     Six Months ended June 30, 2013     Six Months ended June 30, 2012R  
     Average
Balance
     Interest      Average
Yield(1)
    Average
Balance
     Interest      Average
Yield(1)
 
            (In Millions of Euro, Except Percentages)  

Liabilities

                

Deposits from central banks and credit institutions

     89,977         817         1.83     94,151         1,026         2.19

Customer deposits

     286,906         2,311         1.62     269,402         2,189         1.63

In Euros(2)

     150,832         996         1.33     146,959         920         1.26

In other currencies(3)

     136,074         1,315         1.95     122,443         1,269         2.08

Debt securities and subordinated liabilities

     100,907         1,385         2.77     101,668         1,379         2.73

Other financial costs

     —           —           —          —           —           —     

Non-interest-bearing liabilities

     86,041         419         0.98     81,225         414         1.03

Stockholders´ equity

     46,428         —           —          41,487         —           —     
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total average liabilities and equity

     610,259         4,932         1.63     587,933         5,008         1.71
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

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(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, 2013 compared to the six months ended June 30, 2012. 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, 2013/June 30, 2012 R  
     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

     28        3        31   

Securities portfolio and derivatives

     140        (64     76   

Loans and advances to credit institutions

     15        (44     (29

Loans and advances to customers

     (46     (246     (292

In Euros

     (70     (432     (502

In other currencies

     111        100        211   

Other assets

     10        (34     (24
  

 

 

   

 

 

   

 

 

 

Total income

     424        (662     (238
  

 

 

   

 

 

   

 

 

 

Interest expense

      

Deposits from central banks and credit institutions

     (48     (161     (209

Customer deposits

     136        (14     122   

In Euros

     22        55        76   

In other currencies

     137        (92     46   

Debt certificates and subordinated liabilities

     (14     20        6   

Other liabilities

     23        (18     5   
  

 

 

   

 

 

   

 

 

 

Total expense

     176        (252     (76
  

 

 

   

 

 

   

 

 

 

Net interest income

     248        (410     (162
  

 

 

   

 

 

   

 

 

 

 

(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, 2012R/June 30, 2011R  
     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

     17        (34     (17

Securities portfolio and derivatives

     355        (169     186   

Loans and advances to credit institutions

     (25     (47     (72

Loans and advances to customers

     194        606        800   

In Euros

     (118     223        105   

In other currencies

     669        26        695   

Other assets

     13        6        19   
  

 

 

   

 

 

   

 

 

 

Total income

     789        127        916   
  

 

 

   

 

 

   

 

 

 

Interest expense

      

Deposits from central banks and credit institutions

     345        (163     182   

Customer deposits

     (22     (227     (249

In Euros

     (42     (103     (145

In other currencies

     41        (145     (104

Debt certificates and subordinated liabilities

     (112     266        153   

Other liabilities

     139        (136     4   
  

 

 

   

 

 

   

 

 

 

Total expense

     348        (258     90   
  

 

 

   

 

 

   

 

 

 

Net interest income

     441        384        825   
  

 

 

   

 

 

   

 

 

 

 

(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.

 

     Six Months Ended June 30,  
     2013(*)     2012(*)R  
     (In Millions of Euros, except %)  

Average interest earning assets

     564,046        546,451   

Gross yield(1)

     2.10     2.21

Net yield(2)

     1.94     2.05

Net interest margin(3)

     1.22     1.29

Average effective rate paid on all interest-bearing liabilities

     1.03     1.08

Spread(4)

     1.07     1.13

 

(*) 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, 2013, interbank deposits represented 3.92% of our assets. Of such interbank deposits, 31.89% were held outside of Spain and 68.11% 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.

Securities Portfolio

As of June 30, 2013, our securities were carried on our consolidated balance sheet at a carrying amount of €113,209 million, representing 18.8% of our assets. €38,147 million, or 33.7%, of our securities consisted of Spanish Treasury bonds and Treasury bills. The average yield for the six months ended June 30, 2013 on investment securities that BBVA held was 3.9%, compared to an average yield of approximately 5.1% earned on loans and receivables for the six months ended June 30, 2013. The market or appraised value of our total securities portfolio as of June 30, 2013, was €113,159 million. See Notes 10, 12 and 14 to the Interim Consolidated Financial Statements. For

 

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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 tables analyze the carrying amount and market value of debt securities as of June 30, 2013 and December 31, 2012. The trading portfolio is not included in the tables below because the amortized costs and fair values of these items are the same. See Note 10 to the Interim Consolidated Financial Statements.

 

    As of June 30, 2013  
    Amortized cost     Fair Value(1)     Unrealized Gains     Unrealized Losses  
    (In Millions of Euros)  

DEBT SECURITIES -

       

AVAILABLE FOR SALE PORTFOLIO

       
 

 

 

   

 

 

   

 

 

   

 

 

 

Domestic

    35,700        35,873        497        (324
 

 

 

   

 

 

   

 

 

   

 

 

 

Spanish Government and other government agency debt securities

    26,194        26,220        295        (269

Other debt securities

    9,506        9,653        202        (55

Issued by central banks

    —          —          —          —     

Issued by credit institutions

    7,239        7,334        114        (19

Issued by other institutions

    2,267        2,319        88        (36
 

 

 

   

 

 

   

 

 

   

 

 

 

International

    31,822        32,205        1,079        (696
 

 

 

   

 

 

   

 

 

   

 

 

 

Mexico

    10,540        11,005        561        (96

Mexican Government and other government agency debt securities

    9,236        9,667        508        (77

Other debt securities

    1,304        1,338        53        (19

Issued by central banks

    —          —          —          —     

Issued by credit institutions

    223        238        18        (3

Issued by other institutions

    1,081        1,100        35        (16

United States

    7,340        7,335        101        (106

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

    82        82        —          —     

States and political subdivisions

    601        597        11        (15

Other debt securities

    6,657        6,656        90        (91

Issued by central banks

    —          —          —          —     

Issued by credit institutions

    126        129        4        (1

Issued by other institutions

    6,531        6,527        86        (90

Other countries

    13,942        13,865        417        (494

Other foreign Governments and other government agency debt securities

    5,981        5,809        192        (364

Other debt securities

    7,961        8,056        225        (130

Issued by central banks

    1,707        1,705        1        (3

Issued by credit institutions

    4,396        4,500        182        (78

Issued by other institutions

    1,858        1,851        42        (49
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL AVAILABLE FOR SALE PORTFOLIO

    67,522        68,078        1,576        (1,020
 

 

 

   

 

 

   

 

 

   

 

 

 

HELD TO MATURITY PORTFOLIO

       
 

 

 

   

 

 

   

 

 

   

 

 

 

Domestic

    7,169        7,034        31        (166
 

 

 

   

 

 

   

 

 

   

 

 

 

Spanish Government and other government agency debt securities

    6,425        6,289        20        (156

Other domestic debt securities

    744        745        11        (10

Issued by central banks

       

Issued by credit institutions

    248        251        6        (3

Issued by other institutions

    496        493        5        (8
 

 

 

   

 

 

   

 

 

   

 

 

 

International

    2,586        2,671        85        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Securities of Foreign Governments and foreign government agency debt securities

    2,463        2,542        79        —     

Other debt securities

    123        129        6        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL HELD TO MATURITY PORTFOLIO

    9,755        9,705        116        (166
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL DEBT SECURITIES

    77,277        77,783        1,692        (1,186
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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(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.

 

    As of December 31, 2012R  
    Amortized cost     Fair Value(1)     Unrealized Gains     Unrealized Losses  
    (In Millions of Euros)  

DEBT SECURITIES -

       

AVAILABLE FOR SALE PORTFOLIO

       
 

 

 

   

 

 

   

 

 

   

 

 

 

Domestic-

    34,955        34,366        388        (977
 

 

 

   

 

 

   

 

 

   

 

 

 

Spanish Government and other government agency debt securities

    25,375        24,761        243        (857

Other debt securities

    9,580        9,605        145        (120

Issued by central banks

    —          —          —          —     

Issued by credit institutions

    7,868        7,880        71        (59

Issued by other institutions

    1,712        1,725        74        (61
 

 

 

   

 

 

   

 

 

   

 

 

 

International-

    28,211        29,182        1,620        (649
 

 

 

   

 

 

   

 

 

   

 

 

 

Mexico

    8,230        9,191        962        (1

Mexican Government and other government agency debt securities

    7,233        8,066        833        —     

Other debt securities

    997        1,125        129        (1

Issued by central banks

    —          —          —          —     

Issued by credit institutions

    333        388        56        (1

Issued by other institutions

    664        737        73        —     

United States

    6,927        7,028        189        (88

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

    228        228        1        (1

States and political subdivisions

    485        496        20        (9

Other debt securities

    6,214        6,304        168        (78

Issued by central banks

    —          —          —          —     

Issued by credit institutions

    150        154        11        (7

Issued by other institutions

    6,064        6,150        157        (71

Other countries

    13,054        12,963        469        (560

Other foreign Governments and other government agency debt securities

    5,557        5,395        212        (374

Other debt securities

    7,497        7,568        257        (186

Issued by central banks

    1,158        1,159        2        (1

Issued by credit institutions

    4,642        4,750        209        (101

Issued by other institutions

    1,697        1,659        46        (84
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL AVAILABLE FOR SALE PORTFOLIO

    63,166        63,548        2,008        (1,626
 

 

 

   

 

 

   

 

 

   

 

 

 

HELD TO MATURITY PORTFOLIO

       
 

 

 

   

 

 

   

 

 

   

 

 

 

Domestic

    7,278        6,849        4        (433
 

 

 

   

 

 

   

 

 

   

 

 

 

Spanish Government and other government agency debt securities

    6,469        6,065        2        (406

Other debt securities

    809        784        2        (27

Issued by central banks

    —          —          —          —     

Issued by credit institutions

    250        249        2        (3

Issued by other institutions

    559        535        —          (24
 

 

 

   

 

 

   

 

 

   

 

 

 

International-

    2,884        3,011        127        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Securities of foreign Governments and foreign government agency debt securities

    2,741        2,862        121        —     

Other debt securities

    143        149        6        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL HELD TO MATURITY PORTFOLIO

    10,162        9,860        131        (433
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL DEBT SECURITIES

    73,328        73,408        2,139        (2,059
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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(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.

As of June 30, 2013 the carrying amount of the debt securities within the available for sale portfolio and the held to maturity portfolio classified by whether they are listed or unlisted, were as follows:

 

    As of June 30, 2013  
    Amortized cost     Fair Value(1)     Unrealized Gains     Unrealized
Losses
 
    (In Millions of Euros)  

EQUITY SECURITIES -

       

AVAILABLE FOR SALE PORTFOLIO

       

Domestic

    3,369        2,990        71        (450

Equity listed

    3,298        2,919        71        (450

Equity unlisted

    71        71        —          —     

International

    802        791        16        (27

United States-

    528        527        —          (1

Equity listed

    20        19        —          (1

Equity unlisted

    508        508        —          —     

Other countries-

    274        264        16        (26

Equity listed

    204        188        10        (26

Equity unlisted

    70        76        6        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL AVAILABLE FOR SALE PORTFOLIO

    4,171        3,781        87        (477
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL EQUITY SECURITIES

    4,171        3,781        87        (477
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL INVESTMENT SECURITIES

    81,448        81,564        1,779        (1,663
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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(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.

 

    As of December 31, 2012R  
    Amortized cost     Fair Value(1)     Unrealized Gains     Unrealized
Losses
 
    (In Millions of Euros)  

EQUITY SECURITIES -

       

AVAILABLE FOR SALE PORTFOLIO

       

Domestic-

    3,378        3,118        124        (384

Equity listed

    3,301        3,043        122        (380

Equity unlisted

    77        75        2        (4

International

    862        834        16        (44

United States-

    506        503        1        (4

Equity listed

    32        29        1        (4

Equity unlisted

    474        474        —          —     

Other countries

    356        331        15        (40

Equity listed

    262        230        8        (40

Equity unlisted

    94        101        7        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL AVAILABLE FOR SALE PORTFOLIO

    4,240        3,952        140        (428
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL EQUITY SECURITIES

    4,240        3,952        140        (428
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL INVESTMENT SECURITIES

    77,568        77,360        2,279        (2,487
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(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

The following table analyzes the maturities of our debt securities, excluding the trading portfolio, by type and geographical area as of June 30, 2013.

 

     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
%
     Amount      Yield
%
     Amount      Yield
%
     Amount      Yield
%
     Amount  
     (In Millions of Euros, Except Percentages)  

DEBT SECURITIES

                          

AVAILABLE-FOR-SALE PORTFOLIO

                          

Domestic

                          

Spanish government and other Spanish government securities

     1,168         2.5         15,269         3.7         4,430         4.7         5,352         5.2         26,219   

Other debt securities

     3,060         2.6         5,575         4.0         574         3.6         444         5.1         9,653   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Domestic

     4,228         2.5         20,845         3.8         5,004         4.5         5,796         5.2         35,873   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

International

                          

Mexico

     1,462         5.2         5,222         5.3         782         7.0         3,539         4.3         11,005   

Mexican Government and other government agency debt securities

     1,243         5.1         4,770         5.3         658         7.0         2,996         4.0         9,668   

Other debt securities

     219         5.3         453         5.6         123         6.3         542         5.6         1,338   

United States

     295         2.0         4,307         2.3         2,186         2.4         547         4.6         7,335   

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

     39         0.1         19         4.0         21         4.0         2         4.9         82   

States and political subdivisions

     30         6.1         214         4.2         262         3.7         91         2.1         597   

Other U.S. securities

     226         2.1         4,073         2.2         1,903         2.2         454         5.1         6,656   

Other countries

     4,200         3.2         4,506         5.4         2,448         10.6         2,711         5.3         13,864   

Securities of other foreign governments

     718         5.7         2,346         7.6         1,647         13.7         1,097         5.7         5,808   

Other debt securities of other countries

     3,482         2.7         2,160         3.2         801         4.5         1,613         5.0         8,056   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total International

     5,957         3.6         14,035         4.4         5,416         6.8         6,797         5.3         32,205   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL AVAILABLE-FOR-SALE

     10,184         3.1         34,880         4.0         10,421         5.6         12,593         5.2         68,078   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

HELD-TO-MATURITY PORTFOLIO

                          

Domestic

                          

Spanish government

     —           —           1,222         3.4         1,913         4.3         3,289         4.9         6,425   

Other debt securities

     34         4.2         583         3.7         127         3.8         —           —           744   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Domestic

     34         4.2         1,805         3.5         2,040         4.2         3,289         4.9         7,169   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total International

     15         1.7         2,016         3.3         555         4.2         —           —           2,587   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL HELD-TO-MATURITY

     48         3.4         3,822         3.4         2,596         4.2         3,289         4.9         9,755   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL DEBT SECURITIES

     10,233         3.1         38,701         3.9         13,017         5.3         15,882         5.2         77,833   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans and Advances to Credit Institutions

As of June 30, 2013, our total loans and advances to credit institutions amounted to €26,022 million, or 4.3% of total assets. Net of our valuation adjustments, loans and advances to credit institutions amounted to €26,105 million as of June 30, 2013, or 4.3% of our total assets.

 

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Table of Contents

Loans and Advances to Customers

As of June 30, 2013, our total loans and advances amounted to €350,696 million, or 58.4% of total assets. Net of our valuation adjustments, loans and advances amounted to €338,386 million as of June 30, 2013, or 56.3% of our total assets. As of June 30, 2013 our loans and advances in Spain amounted to €201,687 million. Our foreign loans amounted to €149,009 million as of June 30, 2013.

Loans by Geographic Area

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

 

     As of June 30,
2013
    As of December 31,
2012R
    As of June 30,
2012R
 
           (In Millions of Euros)        

Domestic

     201,687        205,216        202,205   

Foreign

      

Western Europe

     19,269        19,979        21,574   

Latin America

     89,121        90,588        88,578   

United States

     37,319        36,040        38,384   

Other

     3,300        3,151        5,594   

Total foreign

     149,009        149,758        154,129   
  

 

 

   

 

 

   

 

 

 

Total loans and advances

     350,696        354,973        356,334   

Valuation adjustments

     (12,310     (12,810     (8,573
  

 

 

   

 

 

   

 

 

 

Total net lending

     338,386        342,163        347,761   
  

 

 

   

 

 

   

 

 

 

Loans by Type of Customer

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

 

     As of June 30,
2013
    As of December 31,
2012R
    As of June 30,
2012R
 
     (In Millions of Euros)  

Domestic

      

Government

     26,069        25,407        27,334   

Agriculture

     1,329        1,402        1,459   

Industrial

     13,654        16,240        16,696   

Real estate and construction

     27,809        30,319        27,668   

Commercial and financial

     20,422        17,021        23,764   

Loans to individuals(1)

     94,703        94,991        86,086   

Other

     17,700        19,836        19,198   
  

 

 

   

 

 

   

 

 

 

Total domestic

     201,687        205,216        202,205   
  

 

 

   

 

 

   

 

 

 

Foreign

      

Government

     10,270        9,509        9,772   

Agriculture

     3,117        3,337        3,217   

Industrial

     13,898        14,491        17,225   

Real estate and construction

     16,503        16,904        18,645   

Commercial and financial

     35,610        34,891        34,578   

Loans to individuals

     57,024        56,254        55,683   

Other

     12,587        14,372        15,010   
  

 

 

   

 

 

   

 

 

 

Total foreign

     149,009        149,758        154,129   
  

 

 

   

 

 

   

 

 

 

Total loans and advances

     350,696        354,973        356,334   
  

 

 

   

 

 

   

 

 

 

Valuation adjustments

     (12,310     (12,810     (8,573
  

 

 

   

 

 

   

 

 

 

Total net lending

     338,386        342,163        347,761   
  

 

 

   

 

 

   

 

 

 

 

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

 

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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,
2013
     As of
December 31,
2012R
     As of
June 30,
2012R
 
     (In Millions of Euros)  

In Euros

     206,887         211,346         215,055   

In other currencies

     131,499         130,817         132,706   
  

 

 

    

 

 

    

 

 

 

Total net lending

     338,386         342,163         347,761   
  

 

 

    

 

 

    

 

 

 

As of June 30, 2013, loans by BBVA and its subsidiaries to associates and jointly controlled companies amounted to €772 million, compared to €820 million as of December 31, 2012. Loans outstanding to the Spanish government and its agencies amounted to €26,069 million, or 7.4% of our total loans and advances as of June 30, 2013, compared to €25,407 million, or 7.2% of our total loans and advances as of December 31, 2012. 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 five largest borrowers as of June 30, 2013, excluding government-related loans, amounted to €17,259 million or approximately 4.9% of our total outstanding loans and advances. As of June 30, 2013 there did not exist any concentration of loans exceeding 10% of our total outstanding loans and advances, 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 advances by domicile of the office that issued the loan and type of customer as of June 30, 2013. 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

    13,687        7,807        4,575        26,069   

Agriculture

    568        492        270        1,329   

Industrial

    10,130        2,720        804        13,654   

Real estate and construction

    15,341        7,667        4,801        27,809   

Commercial and financial

    14,452        3,374        2,596        20,422   

Loans to individuals

    13,413        18,899        62,390        94,703   

Other

    12,066        3,673        1,961        17,700   

Total Domestic

    79,657        44,631        77,398        201,687   
 

 

 

   

 

 

   

 

 

   

 

 

 

Foreign

   

Government

    1,292        1,515        7,464        10,270   

Agriculture

    1,909        856        352        3,117   

Industrial

    6,353        4,811        2,734        13,898   

Real estate and construction

    6,000        5,898        4,605        16,503   

Commercial and financial

    16,731        16,583        2,296        35,610   

Loans to individuals

    7,066        15,297        34,662        57,024   

Other

    6,007        4,249        2,331        12,587   

Total Foreign

    45,358        49,208        54,443        149,009   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans and advances

    125,016        93,839        131,842        350,696   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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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, 2013.

 

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

Fixed rate

     16,825         47,916         64,741   

Variable rate

     105,204         55,735         160,939   
  

 

 

    

 

 

    

 

 

 

Total Loans and advances

     122,029         103,651         225,680   
  

 

 

    

 

 

    

 

 

 

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,     As of December 31,     As of June 30,  
     2013     2012R     2012R  
     (In Millions of Euros, except Percentages)  

Loan loss reserve at beginning of period:

      

Domestic

     9,649        4,694        4,694   

Foreign

     4,510        4,445        4,445   
  

 

 

   

 

 

   

 

 

 

Total loan loss reserve at beginning of period

     14,159        9,139        9,139   

Loans charged off:

      

Total domestic

     (1,139     (2,283     (1,231

Total foreign(1)

     (815     (1,824     (877
  

 

 

   

 

 

   

 

 

 

Total Loans charged off:

     (1,954     (4,107     (2,108

Provision for possible loan losses:

      

Domestic

     1,549        5,867        2,310   

Foreign

     1,225        2,286        1,059   
  

 

 

   

 

 

   

 

 

 

Total Provision for possible loan losses

     2,774        8,153        3,369   

Acquisition and disposition of subsidiaries

     —          2,066        —     

Effect of foreign currency translation

     (199     40        218   

Other

     (387     (1,132     (236

Loan loss reserve at end of period:

      

Domestic

     9,841        9,649        5,733   

Foreign

     4,552        4,510        4,648   
  

 

 

   

 

 

   

 

 

 

Total Loan loss reserve at end of period

     14,393        14,159        10,381   
  

 

 

   

 

 

   

 

 

 

Loan loss reserve as a percentage of total loans and receivables at end of period

     3.90     3.81     2.72

Net loan charge-offs as a percentage of total loans and receivables at end of period

     0.53     1.11     0.55

 

(1) Loans charged off as of June 30, 2013 include €717 million related to real estate loans and loans to individuals and others, €96 million related to commercial and financial loans and €2 million related to loans to governmental and non-governmental agencies. Loans charged off as of December 31, 2012 include €1,628 million related to real estate loans and loans to individuals and others, €195 million related to commercial and financial loans and €1 million related to loans to governmental and non-governmental agencies. Loans charged off as of June 30, 2012 include €825 million related to real estate loans and loans to individuals and others, €52 million related to commercial and financial loans and €1 million related to loans to governmental and non-governmental agencies.

 

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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 €1,954 million for the six months ended June 30, 2013 compared to €2,108 million for the six months ended June 30, 2012.

Our loan loss reserves as a percentage of total loans and receivables increased to 3.9% as of June 30, 2013 from 3.8% as of December 31, 2012, and 2.7% as of June 30, 2012.

Impaired 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 impaired loans which was included in profit attributed to parent company for the six months ended June 30, 2013 and 2012 was €139.7 million and €105.2 million, respectively.

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

 

     As of June 30,     As of December 31,  
     2013     2012R  
     (In Millions of Euros, Except %)  

Impaired loans

    

Domestic

     16,645        15,165   

Public sector

     169        145   

Other resident sector

     16,476        15,019   

Foreign

     4,846        4,836   

Public sector

     11        20   

Other non-resident sector

     4,835        4,816   
  

 

 

   

 

 

 

Total Impaired loans

     21,490        20,001   
  

 

 

   

 

 

 

Total loan loss reserve

     (14,393     (14,159
  

 

 

   

 

 

 

Impaired loans net of reserves

     7,098        5,842   

 

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Our total impaired loans amounted to €21,490 million as of June 30, 2013 compared to €20,001 million as of December 31, 2012.

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, 2013, the loss reserve for impaired assets amounted to €10,682 million, a 13.7% increase compared to €9,394 million as of December 31, 2012. As of June 30, 2013, the loss reserve for not impaired assets amounted to €3,711 million, a 22.1% decrease compared to €4,764 million as of December 31, 2012.

The following table provides information, by domicile and type of customer, regarding our impaired loans and the loan loss reserves to customers taken for each impaired loan category, as of June 30, 2013.

 

    Impaired Loans     Loan Loss Reserve     Impaired Loans as a
Percentage of Loans in
Category
 
    (In Millions of Euros)  

Domestic:

     

Government

    169        (12     0.65

Credit institutions

    —          —          —     

Other sectors

    16,476        (8,255     9.38

Agriculture

    105        (50     7.86

Industrial

    1,577        (725     11.55

Real estate and construction

    8,777        (5,053     31.56

Commercial and other financial

    1,283        (534     6.28

Loans to individuals

    3,764        (1,303     3.97

Other

    970        (590     5.48
 

 

 

   

 

 

   

Total Domestic

    16,644        (8,269     8.06
 

 

 

   

 

 

   

Foreign:

     

Government

    11        (43     0.11

Credit institutions

    21        (17     0.10

Other sectors

    4,814        (2,352     3.47

Agriculture

    167        (124     5.35

Industrial

    209        (132     1.51

Real estate and construction

    1,551        (654     9.40

Commercial and other financial

    826        (311     2.32

Loans to individuals

    1,969        (1,011     3.45

Other

    92        (120     0.73
 

 

 

   

 

 

   

Total Foreign

    4,846        (2,413     2.85
 

 

 

   

 

 

   

General reserve

    —          (3,711  
 

 

 

   

 

 

   

Total Impaired loans

    21,490        (14,393     5.70
 

 

 

   

 

 

   

Troubled Debt Restructurings

For additional information on our restructured or renegotiated loans, see Appendix X to our Interim Consolidated Financial Statements.

 

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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 31.6% as of June 30, 2013, substantially higher than the average delinquency rate for all of our domestic activities (8.1%) and the average delinquency rate for all of our consolidated activities (5.6%) 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 33.8% 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” as of June 30, 2013:

 

     Book Value      Allowance for
Loan Losses
     % of Loans in
Each Category
to Total Loans
to Customers
 
     (In Millions of Euros, Except Percentages)  

Domestic(1)

        

Impaired loans

     7,415         3,718         2.2

Potential problem loans

     1,717         784         0.5

 

(1) Potential problem loans outside of Spain as of June 30, 2013 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, 2013 and December 31, 2012. 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, 2013     As of December 31, 2012R  
     Amount      % of Total
Assets
    Amount      % of Total
Assets
 
     (In Millions of Euros, Except Percentages)  

United Kingdom

     5,863         0.98     5,769         0.93

Mexico

     1,381         0.23     1,539         0.25

Other OECD

     6,226         1.04     6,217         1.01
  

 

 

    

 

 

   

 

 

    

 

 

 

Total OECD

     13,470         2.24     13,525         2.19

Central and South America

     2,087         0.35     2,167         0.35

Other

     3,546         0.59     3,366         0.55
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

     19,103         3.18     19,058         3.09
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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The following table sets forth the amounts of our cross-border outstandings as of June 30, 2013 and December 31, 2012 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, 2013

       

Mexico

    26        18        1,337        1,381   

United Kingdom

    —          3,746        2,117        5,863   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

    26        3,764        3,454        7,243   
 

 

 

   

 

 

   

 

 

   

 

 

 

As of December 31, 2012R

       

Mexico

    3        47        1,490        1,539   

United Kingdom

    —          3,668        2,100        5,768   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

    3        3,715        3,590        7,307   
 

 

 

   

 

 

   

 

 

   

 

 

 

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, 2013.

 

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 impaired 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 €291 million and €269 million as of June 30, 2013 and December 31, 2012, respectively. These figures do not reflect loan loss reserves of 14.8% and 13.8% respectively, against the relevant amounts outstanding at such dates. Deposits with or loans to borrowers in all such countries as of June 30, 2013 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, 2013 and December 31, 2012 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, 2013 and December 31, 2012 amounted to $56 million and $47 million, respectively (approximately €43 million and €36 million, respectively, based on a Euro/dollar exchange rate on June 30, 2013 of $1.00 = €0.76 and December 31, 2012 of $1.00 = €0.76).

 

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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, 2013  
     Customer
Deposits
     Bank of Spain
and Other
Central
Banks
     Other Credit
Institutions
     Total  
     (In Millions of Euros)  

Total Domestic

     147,406         27,591         8,421         183,418   

Foreign

           

Western Europe

     19,186         356         18,538         38,080   

Mexico

     40,941         —           9,578         50,519   

South America

     52,389         36         3,882         56,307   

United States

     39,480         —           6,032         45,512   

Other

     1,073         379         546         1,998   

Total Foreign

     153,069         771         38,576         192,416   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     300,475         28,361         46,997         375,833   
  

 

 

    

 

 

    

 

 

    

 

 

 
     As of December 31, 2012 R  
     Customer
Deposits
     Bank of Spain
and Other
Central
Banks
     Other Credit
Institutions
     Total  
     (In Millions of Euros)  

Total Domestic

     137,011         45,808         11,642         194,461   

Foreign

           

Western Europe

     13,203         350         18,661         32,214   

Mexico

     37,267         —           14,861         52,128   

South America

     54,749         32         4,308         59,089   

United States

     38,834         —           5,594         44,428   

Other

     623         —           379         1,002   

Total Foreign

     144,676         383         43,803         188,862   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     281,687         46,190         55,445         383,322   
  

 

 

    

 

 

    

 

 

    

 

 

 

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.

 

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As of June 30, 2013, the maturity of our time deposits (excluding interbank deposits) in denominations of $100,000 (approximately €76,864 considering the noon buying rate as of June 30, 2013) or greater was as follows:

 

     As of June 30, 2013  
     Domestic      Foreign      Total  
     (In Millions of Euros)  

3 months or under

     16,097         3,691         19,788   

Over 3 to 6 months

     12,058         951         13,009   

Over 6 to 12 months

     14,615         1,105         15,720   

Over 12 months

     24,848         1,416         26,264   
  

 

 

    

 

 

    

 

 

 

Total

     67,618         7,163         74,781   
  

 

 

    

 

 

    

 

 

 

Time deposits from Spanish and foreign financial institutions amounted to €26,867 million as of June 30, 2013, substantially all of which were in excess of $100,000 (approximately €76,864 considering the noon buying rate as of June 30, 2013).

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, 2013 and December 31, 2012, 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, 2013, December 31, 2012, and June 30, 2012.

 

     As of and for the
Six Months Ended
June 30, 2013
    As of and for the
Year Ended
December 31,
2012R
    As of and for the
Six Months Ended
June 30, 2012R
 
     Amount      Average
rate
    Amount      Average
rate
    Amount      Average
rate
 
     (In Millions of Euro, Except Percentages)  

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

               

As of end of period

     43,754         1.40     47,644         1.86     53,488         1.84

Average during period

     45,097         1.34     50,008         1.77     51,238         1.63

Maximum quarter-end balance

     51,698         —          55,947         —          53,488         —     

Bank promissory notes:

               

As of end of period

     5,819         3.15     10,893         3.68     1,478         1.57

Average during period

     8,990         3.30     10,802         3.03     2,059         1.52

Maximum quarter-end balance

     8,791         —          13,590         —          2,345         —     

Bonds and Subordinated debt :

               

As of end of period

     18,273         3.59     19,333         3.35     13,123         3.46

Average during period

     16,916         3.10     16,156         3.89     14,974         2.87

Maximum quarter-end balance

     19,721         —          19,332         —          16,381         —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total short-term borrowings as of end of period

     67,845         2.14     77,870         2.48     68,089         2.15
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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Return on Equity

The following table sets out our return on equity ratios:

 

     As of June 30,
2013
     As of December 31,
2012
     As of June 30,
2012
 
     (In Percentages)  

Return on equity(1)

     13.2         4.0         7.4   

Return on assets(2)

     1.1         0.4         0.6   

Equity to assets ratio(3)

     7.6         7.0         7.1   

 

(1) Represents profit attributed to parent company for the period as a percentage of average stockholder’s funds for the period. For June 30, 2013 and June 30, 2012 data, profit attributed to parent company is annualized by multiplying the profit attributed to parent company for the period by two.
(2) Represents profit attributed to parent company as a percentage of average total assets for the period. For June 30, 2013 and June 30, 2012 data, profit attributed to parent company is annualized by multiplying the profit attributed to parent company for the period by two.
(3) Represents average total equity over average total assets.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Overview

In 2012, the global economy has grown just over 3%, a year-on-year growth rate which is slightly lower than the average for the last three decades (3.5%). This slowdown in world growth is largely due to further flaring up of financial tensions in developed countries. After the U.S. Federal Reserve´s announcement that it will withdraw its monetary policies, depending on the evolution of the economy, international financial environment has become more restrictive. At the same time, emerging economies continue to decelerate, but still show robust growth rates.

Europe is on the road toward more solid -but not as quick- economic and monetary union. Many events have occurred in 2012 which have triggered unease in the markets. First, uncertainties about how to reach fiscal austerity targets without hampering growth. Second, uncertainties arising from the state of the financial system in certain countries, where it is subject to pressure due to lack of growth and suspicion spreading about the solvency of government and government agencies. Lastly, the degree of commitment of certain countries toward the common European project, which at some points prompted fears of a break-up of the Euro (fears which were later largely dispelled). More recently, doubts have risen about the degree of commitment on the banking and fiscal union project. This notwithstanding, the Recovery and Resolution Directive and the Deposit Guarantee Schemes (DGS) were taken in front of the European Parliament in June 2013 and it is expected that they will be approved by the end of the year.

Meanwhile, the Spanish economy has been the focus of financial tensions, at their highest in spring 2012, when spreads were at their widest, while access to finance from the different sectors of the wholesale markets was severely restricted. However, important steps forward have also been taken. On the one hand, measures have been taken to meet fiscal targets through a combination of tax hikes and reduced public spending. There was some progress made in this respect in the latter part of 2012, and in 2013 the public administration reform was announced to reinforce this trend, keeping tax data in the expected correction line. Second, the Spanish financial restructuring process is almost complete. For that purpose, the Spanish economy has obtained an advantageous credit facility from the European Stability Mechanism (ESM), enabling it to recapitalize institutions with solvency problems in stress scenarios, these entities transferred their real estate assets to the “bad bank” (SAREB). In addition, critical structural reforms have also been implemented, such as in the labor market, thereby increasing the growth capacity of the Spanish economy. Spain has also benefited from decisions taken within the European Union framework, particularly in terms of the start-up of the ESM and the ECB’s commitment toward supporting the financing of Spanish sovereign debt through the purchase of Spanish government debt once the authorities agree to request funds from the ESM. Overall, with the measures taken by the Spanish authorities and the support from Euro zone measures, there has been a partial easing of financial tensions, despite the economic contraction (by -1.4%) in 2012, following on growth of a mere 0.4% the previous year. In 2013 the growth aims at rates similar to those of 2012.

Economic recovery continued in the United States throughout 2012, albeit at a slower pace than that reported in similar cyclical stages in the past. In fact, although GDP has grown in the region by around 2%, there has been a marked slowdown in the latter part of the year. Private demand remained feeble throughout the period, due to the

 

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high levels of uncertainty abroad and also doubt about the resolution of the fiscal cliff, meaning the automatic activation of a program of tax hikes and spending cuts that might be on a sufficient scale to push the U.S. economy into recession. However, there has been a certain degree of recovery in some sections of economic activity, such as the housing market. At the same time, monetary policy has helped to keep expectations positive through a new quantitative easing program and the commitment toward continuing with a low interest rate scenario for the time it takes to reduce the unemployment rate. In 2013 it was announced that the stimulus would be removed (Quantitative Easing), but gradually and depending on the economic trend. Although markets reacted intensely at first, it is not expected that rate hikes will occur until a later time.

Emerging economies are not immune to the global deterioration, but they continue to report significant growth rates. Emerging markets in both Latin America and Asia have felt the effects of the global financial tensions and the stagnation in the developed economies, even though domestic demand in these countries has remained sound. Exports, however, have been adversely affected. As a result, growth in Latin America slowed to around 3% in 2012 (due particularly to the poor performance in Brazil), while Asia (not including China) has grown a few tenths of a point below 4%.

Despite the weakness shown by its main foreign market (United States), the Mexican economy has reported above-average growth rates in the region and has also outstripped its own average for the last decade. Growth has continued close to 2011 levels, at around 4% in 2012 to moderate at the beginning of 2013. This is largely due to sound domestic demand, underpinned by the rise in employment and the availability of credit, but also to the greater foreign competitiveness of the Mexican economy. Although Mexican inflation stood above the target set by the Central Bank in 2012 (3%), this was due to temporary factors affecting the prices of certain products which were later corrected in 2013. The outlook is for monetary policy to be maintained until the end of the year, when a rate cut cannot be ruled out.

In South America, growth has been hampered by Brazil, which has hovered around stagnation during most of 2012. In most South American countries, however, growth was even higher than expected, despite the deterioration abroad, given that commodity prices have remained high and financial tensions have eased. In this context, both consumption and investment have continued to be shored up by the strength of the labor and credit markets and by still expansive monetary policies. However, in 2013 the activity has showed signs of weakness and capital inflows were partially reversed by external and internal factors. Especially negative has been the evolution of Venezuela, where growth could be negative this year. The greatest risks for the region come from a slowdown in China and a fall in the price of raw materials.

The gentle slowdown which China has been experiencing for some time, largely due to the economic policy measures taken to minimize the risks of overheating, has been heightened as the environment abroad has weakened. This has sparked fears of a hard landing for the Chinese economy. Nevertheless, the economy has stabilized in the latter part of 2012 and the authorities have stated that they will continue to use both monetary policy and fiscal stimulus measures to keep China’s growth at acceptable levels. However, GDP slowed to 7.6% in 2012 (from rates of between 9% and 10% in the three preceding years), and in 2013 the activity has continued to show signs of weakness (for smaller investments and exports), to which national leaders have not reacted.

Lastly, Turkey has been affected by European tensions, not only in its financial markets, but also from the knock-on effect of lack of external demand. Activity has also slowed down due to the measures taken to correct the imbalances accumulated on Turkey’s current account and in inflation. Even so, Turkey grew by 3% in 2012. The authorities are continuing to push through measures designed to reduce the economy’s traditional imbalances (such as energy dependence), and there are signs of improvement in the external deficit. However, during 2013, social unrest and political conflicts in the region, a fall in capital inflows and higher funding costs could worsen slightly the stage.

 

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

Trends in Exchange Rates

In the currency markets, the Euro depreciated significantly against the U.S. Dollar in the first half of the 2012 due to the heightened perception of risk with respect to the European debt crisis. Nonetheless, the steps taken by the ECB during the summer of 2012 to reduce fragmentation in the Euro zone’s financial markets helped strengthen the Euro in the second half of the year. Nevertheless, the Euro suffered a 7.7% annual average depreciation against the U.S. Dollar. Subsequently, the pre-announcement in 2013 of the withdrawal of extraordinary liquidity of the Federal Reserve has hit the markets, but it is still expected that the U.S. Dollar will continue to appreciate in the short term. Currency movements against the U.S. Dollar in the emerging countries have also been determined by the increase or decrease in perceived risk. The market expectations for both a withdrawal of monetary stimulus in the U.S. earlier than expected, and a larger slowdown in the Chinese economy, represented a generalized depreciation of the exchange rates in emerging economies. Going forward, to the extent that there is some optimism about the behavior of capital flows in emerging economies, it is expected that the trend will follow a slight depreciation in 2013 and 2014, contained in part by the central banks. 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 Chinese Yuan against the Euro, expressed in local currency per €1.00 for the six months ended June 30, 2013 and 2012, respectively and as of June 30, 2013 and December 31, 2012 according to the European Central Bank (“ECB”).

 

     Average Exchange Rates      Period-End Exchange Rates  
     For the Six
Months ended
June 30, 2013
     For the Six
Months ended
June 30, 2012
     As of June 30,
2013
     As of December 31,
2012
 

Mexican peso

     16.4929         17.1839         17.0413         17.1845   

U.S. Dollar

     1.3131         1.2965         1.3080         1.3194   

Argentine peso

     6.7271         5.6942         7.0316         6.4768   

Chilean peso

     628.5355         638.9776         659.1958         633.3122   

Colombian peso

     2,398.0815         2,325.5814         2,512.5628         2,331.0023   

Peruvian new sol

     3.4372         3.4673         3.6327         3.3678   

Venezuelan bolivar fuerte

     7.6276         5.5682         8.2300         5.6616   

Turkish lira

     2.3804         2.3362         2.5210         2.3551   

Chinese Yuan

     8.1272         8.1905         8.0280         8.2207   

During the six months ended June 30, 2013, the Mexican peso, the Chilean peso, the Peruvian new sol and the Chinese Yuan appreciated against the Euro on average terms, while the U.S. dollar, the Argentine peso, the Colombian peso, the Venezuelan bolivar fuerte (which was devalued in February 2013) and the Turkish lira depreciated against the Euro on average terms. At period-end, all of these currencies depreciated against the Euro compared with the period-end rates at December 31, 2012, with the exception of the Mexican peso, the U.S. Dollar and the Chinese Yuan. Overall, the effect of changes in the exchange rates on the period-on-period comparison of the Group’s income statement and balance sheet was positive.

 

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BBVA Group Results of Operations for the Six Months Ended June 30, 2013 Compared to the Six Months Ended June 30, 2012

The changes in the Group’s consolidated income statements for the six months ended June 30, 2013 and June 30, 2012 were as follows:

 

     For the Six Months
Ended June 30,
       
     2013     2012R     Change  
     (In Millions of Euros)     (In %)  

Interest and similar income

     11,831        12,069        (2.0

Interest expense and similar charges

     (4,932     (5,008     (1.5
  

 

 

   

 

 

   

Net interest income

     6,899        7,061        (2.3
  

 

 

   

 

 

   

Dividend income

     65        337        (80.7

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

     407        542        (24.9

Fee and commission income

     2,692        2,544        5.8   

Fee and commission expenses

     (611     (512     19.3   

Net gains (losses) on financial assets and liabilities

     794        724        9.7   

Net exchange differences

     515        23        n.m. (1) 

Other operating income

     2,554        2,831        (9.8

Other operating expenses

     (2,711     (2,741     (1.1

Administration costs

     (4,833     (4,522     6.9   

Personnel expenses

     (2,808     (2,650     6.0   

General and administrative expenses

     (2,025     (1,872     8.2   

Depreciation and amortization

     (535     (445     20.2   

Provisions (net)

     (273     (228     19.7   

Impairment losses on financial assets (net)

     (2,635     (3,235     (18.5

Impairment losses on other assets (net)

     (214     (269     (20.4

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

     693        21        n.m. (1) 

Negative goodwill

     —          —          —     

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

     (309     (287     7.7   
  

 

 

   

 

 

   

Operating profit before tax

     2,498        1,844        35.5   
  

 

 

   

 

 

   

Income tax

     (601     (183     228.4   
  

 

 

   

 

 

   

Profit from continuing operations

     1,897        1,661        14.2   
  

 

 

   

 

 

   

Profit from discontinued operations (net)

     1,393        171        n.m. (1) 
  

 

 

   

 

 

   

Profit

     3,290        1,832        79.6   
  

 

 

   

 

 

   

Profit attributed to parent company

     2,882        1,510        90.9   

Profit attributed to non-controlling interests

     408        322        26.7   
  

 

 

   

 

 

   

 

(1) Not meaningful.

The changes in our consolidated income statements for the six months ended June 30, 2013 and June 30, 2012 were as follows:

Net interest income

The following table summarizes the principal components of net interest income for the six months ended June 30, 2013 and June 30, 2012:

 

     For the Six Months
Ended June 30,
       
     2013     2012R     Change  
     (In Millions of Euros)     (In %)  

Interest income

     11,831        12,069        (2.0

Interest expense

     (4,932     (5,008     (1.5
  

 

 

   

 

 

   

Net interest income

     6,899        7,061        (2.3
  

 

 

   

 

 

   

 

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Net interest income decreased 2.3% to €6,899 million for the six months ended June 30, 2013 from €7,061 million for the six months ended June 30, 2012, mainly due to the decrease in the yield on loans, as a result of the difficult economic conditions in Spain, characterized by a low lending activity and pressure on margins, which was higher than the decline in the cost of deposits.

Dividend income

Dividend income decreased 80.7% to €65 million for the six months ended June 30, 2013 from €337 million for the six months ended June 30, 2012. This decrease was primarily due to the decrease in the dividends received from investments managed by our Global Markets area.

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 decreased by 24.9% to €407 million as of June 30, 2013 compared to the €542 million recorded for the six months ended June 30, 2012, mainly due to the decreased profits of CNCB for such period.

Fee and commission income

The breakdown of fee and commission income for the six months ended June 30, 2013 and June 30, 2012 is as follows:

 

     For the Six Months Ended
June 30,
        
     2013      2012R      Change  
     (In Millions of Euros)      (In %)  

Commitment fees

     93         88         5.7   

Contingent risks

     156         163         (4.3

Letters of credit

     23         26         (11.5

Bank and other guarantees

     133         137         (2.9

Arising from exchange of foreign currencies and banknotes

     11         15         (26.7

Collection and payment services income

     1,494         1,355         10.3   

Bills receivables

     32         36         (11.1

Current accounts

     179         192         (6.8

Credit and debit cards

     937         807         16.1   

Checks

     122         110         10.9   

Transfers and others payment orders

     163         147         10.9   

Rest

     61         63         (3.2

Securities services income

     576         539         6.9   

Securities underwriting

     46         42         9.5   

Securities dealing

     103         92         12.0   

Custody securities

     166         163         1.8   

Investment and pension funds

     200         182         9.9   

Rest assets management

     61         60         1.7   

Counseling on and management of one-off transactions

     7         4         75.0   

Financial and similar counseling services

     19         19         —     

Factoring transactions

     19         20         (5.0

Non-banking financial products sales

     60         50         20.0   

Other fees and commissions

     257         291         (11.7
  

 

 

    

 

 

    

Fee and commission income

     2,692         2,544         5.8   
  

 

 

    

 

 

    

 

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Fee and commission income increased by 5.8% to €2,692 million for the six months ended June 30, 2013 from €2,544 million for the six months ended June 30, 2012 mainly due to the increased activity in credit and debit cards in South America and Mexico.

Fee and commission expenses

The breakdown of fee and commission expenses for the six months ended June 30, 2013 and June 30, 2012 were as follows:

 

     For the Six Months Ended
June 30,
        
     2013      2012R      Change  
     (In Millions of Euros)      (In %)  

Brokerage fees on lending and deposit transactions

     —           2         n.m (1) 

Fees and commissions assigned to third parties

     440         363         21.2   

Credit and debit cards

     370         302         22.5   

Transfers and others payment orders

     24         19         26.3   

Securities dealing

     3         6         (50.0

Rest

     43         36         19.4   

Other fees and commissions

     171         147         16.3   
  

 

 

    

 

 

    

Fee and commission expenses

     611         512         19.3   
  

 

 

    

 

 

    

 

(1) Not meaningful.

Fee and commission expenses increased by 19.3% to 611 million for the six months ended June 30, 2013 from €512 million for the six months ended June 30, 2012, due to the greater business activity in credit and debit cards.

Net gains (losses) on financial assets and liabilities and exchange differences

Net gains (losses) on financial assets and liabilities increased by 9.7% to €794 million for the six months ended June 30, 2013 from €724 million for the six months ended June 30, 2012, primarily as a result of the capital gains derived from the sale of some securities portfolios.

The table below provides a breakdown of net gains (losses) on financial assets and liabilities for the six months ended June 30, 2013 and June 30, 2012:

 

     For the Six Months Ended
June 30,
        
     2013      2012R      Change  
     (In Millions of Euros)      (In %)  

Financial assets held for trading

     98         208         (52.9

Other financial assets designated at fair value through profit or loss

     32         46         (30.4

Other financial instruments not designated at fair value through profit or loss

     664         470         41.3   

Available-for-sale financial assets

     533         317         68.1   

Loans and receivables

     118         19         n.m. (1) 

Rest

     13         134         (90.3
  

 

 

    

 

 

    

Net gains (losses) on financial assets and liabilities

     794         724         9.7   
  

 

 

    

 

 

    

 

(1) Not meaningful.

 

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Net exchange differences increased to €515 million for the six months ended June 30, 2013 from €23 million for the six months ended June 30, 2012, due primarily to the positive evolution of certain foreign currencies (including the Chilean peso and the Peruvian new sol) and the structural management of exchange rates, mainly by entering into derivatives transactions.

Other operating income and expenses

Other operating income amounted to €2,554 million for the six months ended June 30, 2013, a 9.8% decrease compared to €2,831 million for the six months ended June 30, 2012, due primarily to decreased income derived from insurance and reinsurance contracts.

Other operating expenses for the six months ended June 30, 2013, amounted to €2,711 million, a 1.1% decrease compared to the €2,741 million recorded for the six months ended June 30, 2012.

Administration costs

Administration costs comprise personnel expenses and general and administrative expenses and for the six months ended June 30, 2013 were €4,833 million, a 6.9% increase from the €4,522 million recorded for the six months ended June 30, 2012, due primarily to the investments made to implement our expansion and technological transformation plans.

The table below provides a breakdown of personnel expenses for the six months ended June 30, 2013 and June 30, 2012:

 

     For the Six Months Ended
June 30,
        
     2013      2012R      Change  
     (In Millions of Euros)      (In %)  

Wages and salaries

     2,120         2,033         4.3   

Social security costs

     355         324         9.6   

Transfers to internal pension provisions

     37         26         42.3   

Contributions to external pension funds

     49         46         6.5   

Other personnel expenses

     247         221         11.8   
  

 

 

    

 

 

    

Personnel expenses

     2,808         2,650         6.0   
  

 

 

    

 

 

    

Wages and salaries for the six months ended June 30, 2013 increased 4.3% to €2,120 million from €2,033 million for the six months ended June 30, 2012 due to the high inflation recorded in South America.

The table below provides a breakdown of general and administrative expenses for the six months ended June 30, 2013 and June 30, 2012:

 

     For the Six Months Ended
June 30,
        
     2013      2012R      Change  
     (In Millions of Euros)      (In %)  

Technology and systems

     401         338         18.6   

Communications

     145         154         (5.8

Advertising

     196         173         13.3   

Property, fixtures and materials

     449         433         3.7   

Of which:

        

-Rent expenses

     239         246         (2.8

Taxes other than income tax

     211         197         7.1   

Other expenses

     623         577         8.0   
  

 

 

    

 

 

    

General and administrative expenses

     2,025         1,872         8.2   
  

 

 

    

 

 

    

 

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Technology and systems expenses increased 18.6% to €401 million in the six months ended June 30, 2013 compared to €338 million in the six months ended June 30, 2012. In recent years, we have undertaken significant investments in global technology projects, particularly in the area of transformation and innovation. We started up a number of projects in 2012, including the implementation of the new BBVA Compass technological platform in all our branches in the United States.

Depreciation and amortization

Depreciation and amortization for the six months ended June 30, 2013 amounted to €535 million a 20.2% increase compared to €445 million recorded for the six months ended June 30, 2012, due primarily to the amortization of software and tangible assets for own use.

Provisions (net)

Provisions (net) for the six months ended June 30, 2013 stood at €273 million, a 19.7% increase from the €228 million recorded for the six months ended June 30, 2012, primarily to cover early retirement benefits and other allocations to pension funds.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) for the six months ended June 30, 2013 was €2,635 million, compared to the €3,235 million recorded for the six months ended June 30, 2012. The decrease is due to the fact that during 2013 there were lower write-downs to address the deterioration of the loans related to real estate in Spain. This operating segment’s non-performing asset ratio increased to 5.6% as of June 30, 2013 from 5.2% as of December 31, 2012.

Impairment losses on other assets (net)

Impairment losses on other assets (net) for the six months ended June 30, 2013 amounted to €214 million, a 20.4% decrease compared to the €269 million recorded for the six months ended June 30, 2012.

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

Gains (losses) on derecognized assets not classified as non-current assets held for sale for the six months ended June 30, 2013 amounted to a gain of €693 million compared to a gain of €21 million for the six months ended June 30, 2012. This increase was mainly due to the capital gains generated by the VIF (Value of In-Force) monetization transaction entered into by BBVA Seguros and SCOR Global Life Reinsurance Ireland plc. (“SCOR”), pursuant to which SCOR assumed a quota share of 90% of the majority of BBVA Seguros’ single premium and regular premium business in Spain (consisting mainly of life risk insurance policies). BBVA Seguros received a reinsurance commission of approximately €630 million before tax from SCOR.

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

Gains (losses) in non-current assets held for sale not classified as discontinued operations for the six months ended June 30, 2013, amounted to a loss of €309 million, compared to a loss of €287 million for the six months ended June 30, 2012. This increase was primarily due to the higher provisions made in connection with real estate foreclosed assets in Spain.

Operating profit before tax

As a result of the foregoing, operating profit before tax for the six months ended June 30, 2013 was €2,498 million, a 35.5% increase from the €1,844 million recorded for the six months ended June 30, 2012.

 

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Income tax

Income tax for the six months ended June 30, 2013 was €601 million compared to the €183 million recorded for the six months ended June 30, 2012 due to a higher operating profit before tax and the lower proportion of revenues with low or zero tax rates.

Profit from continuing operations

As a result of the foregoing, profit from continuing operations for the six months ended June 30, 2013 was €1,897 million, a 14.2% decrease from the €1,661 million recorded for the six months ended June 30, 2012.

Profit from discontinued operations (net)

Profit from discontinued operations (net) for the six months ended June 30, 2013 stood at €1,393 million compared to €171 million for the six months ended June 30, 2012. The increase was mainly due to the capital gain from the sale of our stakes in the Mexican company Administradora de Fondos para el Retiro Bancomer, S.A., in the Colombian company BBVA Horizonte Sociedad Administradora de Fondos de Pensiones y Censantías S.A, and in the Peruvian company AFP Horizonte S.A.

Profit

As a result of the foregoing, profit for the six months ended June 30, 2013 was €3,290 million, a 79.6% increase from the €1,832 million recorded for the six months ended June 30, 2012.

Profit attributed to parent company

Profit attributed to parent company for the six months ended June 30, 2013 stood at €2,882 million compared to €1,510 million for the six months ended June 30, 2012.

Profit attributed to non-controlling interests

Profit attributed to non-controlling interests for the six months ended June 30, 2013 was €408 million, a 26.7% increase compared to the €322 million recorded for the six months ended June 30, 2012, due mainly to the growth in earnings from Peru where we have significant minority shareholders.

Results of Operations by Operating Segment for the Six Months Ended June 30, 2013 Compared to the Six Months Ended June 30, 2012

SPAIN

 

    

For the Six Months Ended

June 30,

       
     2013     2012R     Change  
     (In Millions of Euros)     (In %)  

Net interest income

     2,053        2,367        (13.3
  

 

 

   

 

 

   

Net fees and commissions

     703        663        5.9   

Net gains (losses) on financial assets and liabilities and net exchange differences

     416        232        78.8   

Other operating income and expenses (net)

     78        196        (60.2

Administration costs

     (1,477     (1,337     10.5   

Depreciation and amortization

     (56     (49     14.0   

Impairment losses on financial assets (net)

     (1,166     (918     26.9   

Provisions (net) and other gains (losses)

     517        (32     n.m. (1) 
  

 

 

   

 

 

   

Operating profit before tax

     1,066        1,122        (5.0
  

 

 

   

 

 

   

Income tax

     (305     (338     (9.8
  

 

 

   

 

 

   

Profit from continuing operations

     761        784        (2.9
  

 

 

   

 

 

   

Profit from discontinued operations (net)

     —          —          —     
  

 

 

   

 

 

   

Profit

     761        784        (2.9
  

 

 

   

 

 

   

Profit attributed to non-controlling interests

     (19     (1     n.m. (1) 
  

 

 

   

 

 

   

Profit attributed to parent company

     742        783        (5.2
  

 

 

   

 

 

   

 

(1) Not meaningful.

 

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Table of Contents

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2013 was €2,053 million, a 13.3% decrease compared with the €2,367 million recorded for the six months ended June 30, 2012, mainly due to the decrease in income from loans, as a result of the difficult economic conditions, characterized by a low lending activity and pressure on margins, in Spain.

Net fees and commissions

Net fees and commissions of this operating segment amounted to €703 million for the six months ended June 30, 2013, a 5.9% increase from the €663 million recorded for the six months ended June 30, 2012, due to the greater contribution from mutual and pension funds.

Net gains on financial assets and liabilities and net exchange differences

Net gains on financial assets and liabilities and net exchange differences of this operating segment for the six months ended June 30, 2013 was €416 million compared with the €232 million recorded for the six months ended June 30, 2012, mainly due to the positive effect of exchanges differences principally resulting from ALCO management.

Other operating income and expenses (net)

Other operating income and expenses (net) of this operating segment for the six months ended June 30, 2013 was a gain of €78 million, a 60.2% decrease from the €196 million gain recorded for the six months ended June 30, 2012, primarily due to decreased income from insurance activities and a higher contribution to the Deposit Guarantee Fund due to a higher volume of deposits.

Administration costs

Administration costs of this operating segment for the six months ended June 30, 2013 were €1,477 million, a 10.5% increase from the €1,337 million recorded for the six months ended June 30, 2012, primarily due to the incorporation of Unnim.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) of this operating segment for the six months ended June 30, 2013 was €1,166 million compared to the €918 million recorded for the six months ended June 30, 2012 which is mainly attributable to the impairment of loans related to corporates in Spain. This operating segment’s non-performing asset ratio increased to 4.7% as of June 30, 2013 from 4.1% as of December 31, 2012.

Operating profit before tax

As a result of the foregoing, the operating profit before tax of this operating segment for the six months ended June 30, 2013 was €1,066 million, compared with the €1,122 million recorded in the six months ended June 30, 2012.

 

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Table of Contents

Income tax

Income tax of this operating segment for the six months ended June 30, 2013 was a €305 million expense, a decrease from the €338 million expense recorded in the six months ended June 30, 2012 mainly due to a lower operating profit before tax.

Profit attributed to parent company

As a result, profit attributed to parent company for the six months ended June 30, 2013 amounted to €742 million, compared with the €783 million in the six months ended June 30, 2012.

REAL ESTATE ACTIVITY IN SPAIN

 

     For the Six Months Ended
June 30,
       
     2013     2012R     Change  
     (In Millions of Euros)     (In %)  

Net interest income

     42        (2     n.m. (1) 
  

 

 

   

 

 

   

Net fees and commissions

     5        9        (41.1

Net gains (losses) on financial assets and liabilities and net exchange differences

     19        (44     n.m. (1) 

Other operating income and expenses (net)

     (64     (15     n.m. (1) 

Administration costs

     (63     (43     47.0   

Depreciation and amortization

     (11     (11     —     

Impairment losses on financial assets (net)

     (271     (1,370     (80.2

Provisions (net) and other gains (losses)

     (505     (531     (5.0
  

 

 

   

 

 

   

Operating profit/(loss) before tax

     (847     (2,007     (57.8
  

 

 

   

 

 

   

Income tax

     221        579        (61.9
  

 

 

   

 

 

   

Profit from continuing operations

     (627     (1,428     (56.1
  

 

 

   

 

 

   

Profit from discontinued operations (net)

     —          —          —     
  

 

 

   

 

 

   

Profit

     (627     (1,428     (56.1
  

 

 

   

 

 

   

Profit attributed to non-controlling interests

     (2     1        n.m. (1) 
  

 

 

   

 

 

   

Profit attributed to parent company

     (629     (1,427     (55.9
  

 

 

   

 

 

   

 

(1) Not meaningful

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2013 was a gain of €42 million compared with a loss of €2 million recorded for the six months ended June 30, 2012. Net interest income generated by this operating segment is lower than the net interest income of other operating segments since its main activity relates to the management of real estate assets (rather than to the provision of banking services).

Net fees and commissions

Net fees and commissions of this operating segment amounted to €5 million for the six months ended June 30, 2013, compared with the €9 million recorded for the six months ended June 30, 2012.

 

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Net gains (losses) on financial assets and liabilities and net exchange differences

Net gains on financial assets and liabilities and net exchange differences of this operating segment for the six months ended June 30, 2013 was a gain of €19 million compared with a loss of €44 million recorded for the six months ended June 30, 2012.

Other operating income and expenses (net)

Other operating income and expenses (net) of this operating segment for the six months ended June 30, 2013 was a loss of €64 million compared with a loss of €15 million recorded for the six months ended June 30, 2012.

Administration costs

Administration costs of this operating segment for the six months ended June 30, 2013 were €63 million, a 47.0% increase over the €43 million recorded for the six months ended June 30, 2012, primarily due to increased personnel expenses, as a result of the allocation of additional staff to this segment in order to carry out its activity.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) of this operating segment for the six months ended June 30, 2013 was €271 million, an 80.2% decrease from the €1,370 million recorded for the six months ended June 30, 2012. This decrease is primarily due to the existence of lower losses in the real estate sector in Spain in the first half of 2013 compared to the first half of 2012.

Provisions (net) and other gains (losses)

Provisions (net) and other gains (losses) of this operating segment for the six months ended June 30, 2013 was a loss of €505 million, a 5.0% decrease from the €531 million loss recorded in the six months ended June 30, 2012.

Operating profit / (loss) before tax

As a result of the foregoing, operating loss before tax of this operating segment for the six months ended June 30, 2013 was €847 million, a 57.8% decrease from the €2,007 million operating loss before tax recorded in the six months ended June 30, 2012.

Income tax

Income tax of this operating segment for the six months ended June 30, 2013 was a benefit of €221 million, a 61.9% decrease from the benefit of €579 million recorded in the six months ended June 30, 2012, mainly due to a lower operating loss before tax.

Profit (loss) attributed to parent company

As a result of the foregoing, loss attributed to parent company of this operating segment for the six months ended June 30, 2013 was €629 million, a 55.9% decrease from the €1,427 million loss recorded in the six months ended June 30, 2012.

EURASIA

As described under “Presentation of Financial Information”, in accordance with the new standard set forth by IFRS 11, Garanti and entities of the Garanti group are from January 1, 2013 accounted for using the equity method in our consolidated financial information, whereas they were accounted for under the proportionate consolidation method prior to such date. In accordance with IFRS 8, the analysis of the Eurasia business segment follows management criteria, which includes 25.01% of the assets, liabilities and income statement of Garanti. A reconciliation of the income statement of our operating segments and the Group’s income statement is set forth at the end of this report.

 

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     For the Six Months Ended
June 30,
       
     2013     2012R     Change  
     (In Millions of Euros)     (In %)  

Net interest income

     490        386        26.9   
  

 

 

   

 

 

   

Net fees and commissions

     206        235        (12.1

Net gains (losses) on financial assets and liabilities and net exchange differences

     166        83        100.8   

Other operating income and expenses (net)

     242        393        (38.4

Administration costs

     (334     (339     (1.5

Depreciation and amortization

     (27     (27     (0.8

Impairment losses on financial assets (net)

     (191     (77     148.2   

Provisions (net) and other gains (losses)

     (35     (19     80.8   
  

 

 

   

 

 

   

Operating profit before tax

     518        635        (18.4
  

 

 

   

 

 

   

Income tax

     (89     (56     58.3   
  

 

 

   

 

 

   

Profit from continuing operations

     429        579        (25.8
  

 

 

   

 

 

   

Profit from discontinued operations (net)

     —          —          —     
  

 

 

   

 

 

   

Profit

     429        579        (25.8
  

 

 

   

 

 

   

Profit attributed to non-controlling interests

     —          —          —     
  

 

 

   

 

 

   

Profit attributed to parent company

     429        579        (25.8
  

 

 

   

 

 

   

 

(1) Not meaningful.

As discussed above under “—Factors Affecting the Comparability of our Results of Operations and Financial Condition,” in the six months ended June 30, 2013, the Turkish lira depreciated against the Euro in average terms, resulting in a negative exchange rate effect on our income statement for the six months ended June 30, 2013.

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2013 was €490 million compared with the €386 million recorded for the six months ended June 30, 2012. This increase was mainly due to the decrease in the interest and similar expenses related to certain lira denominated liabilities of Garanti.

Net fees and commissions

Net fees and commissions of this operating segment amounted to €206 million for the six months ended June 30, 2013, a 12.1% decrease from the €235 million recorded for the six months ended June 30, 2012, due to a lower activity in the wholesale market area.

Net gains on financial assets and liabilities and net exchange differences

Net gains on financial assets and liabilities and net exchange differences of this operating segment for the six months ended June 30, 2013 was €166 million compared with the €83 million recorded for the six months ended June 30, 2012, principally as a result of the results of the Global Markets unit of our Eurasia operating segment.

Other operating income and expenses (net)

Other operating income and expenses (net) of this operating segment for the six months ended June 30, 2013 was a gain of €242 million a 38.4% decrease from the €393 million gain recorded for the six months ended June 30, 2012 due to the lower contribution of CNCB’s equity accounted earnings.

 

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Administration costs

Administration costs of this operating segment for the six months ended June 30, 2013 were €334 million, a 1.5% decrease over the €339 million recorded for the six months ended June 30, 2012.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) of this operating segment for the six months ended June 30, 2013 was €191 million, compared with the €77 million recorded for the six months ended June 30, 2012 mainly due to the increased impairment losses on financial assets in Garanti. This operating segment’s non-performing asset ratio increased to 3.0% as of June 30, 2013 from 2.8% as of December 31, 2012.

Operating profit before tax

As a result of the foregoing, operating profit before tax of this operating segment for the six months ended June 30, 2013 was €518 million, an 18.4% decrease from the €635 million recorded in the six months ended June 30, 2012.

Income tax

Income tax of this operating segment for the six months ended June 30, 2013 was €89 million, compared with the €56 million recorded in the six months ended June 30, 2012 as a result of a lower proportion of income with a relatively low tax rate.

Profit attributed to parent company

As a result of the foregoing, profit attributed to parent company of this operating segment for the six months ended June 30, 2013 was €429 million, a 25.8% decrease from the €579 million recorded in the six months ended June 30, 2012.

MEXICO

 

     For the Six Months Ended
June 30,
       
     2013     2012R     Change  
     (In Millions of Euros)     (In %)  

Net interest income

     2,228        2,021        10.3   
  

 

 

   

 

 

   

Net fees and commissions

     582        525        10.8   

Net gains (losses) on financial assets and liabilities and net exchange differences

     114        102        11.1   

Other operating income and expenses (net)

     177        131        34.7   

Administration costs

     (1,097     (994     10.3   

Depreciation and amortization

     (81     (62     30.2   

Impairment losses on financial assets (net)

     (727     (616     18.0   

Provisions (net) and other gains (losses)

     (31     (25     26.0   
  

 

 

   

 

 

   

Operating profit before tax

     1,164        1,082        7.6   
  

 

 

   

 

 

   

Income tax

     (288     (260     11.0   
  

 

 

   

 

 

   

Profit from continuing operations

     876        822        6.5   
  

 

 

   

 

 

   

Profit from discontinued operations (net)

     —          —          —     
  

 

 

   

 

 

   

Profit

     876        822        6.5   
  

 

 

   

 

 

   

Profit attributed to non-controlling interests

     —          —          —     
  

 

 

   

 

 

   

Profit attributed to parent company

     876        822        6.5   
  

 

 

   

 

 

   

 

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As discussed above under “Factors Affecting the Comparability of our Results of Operations and Financial Condition,” in the six months ended June 30, 2013 the Mexican peso appreciated against the Euro in average terms, resulting in a positive exchange rate effect on our income statement for the six months ended June 30, 2013.

In the second half of 2012, we signed an agreement for the sale of our pension business in Mexico and the sale was completed on January 9, 2013. The gain on the sale was recorded under our Corporate Center.

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2013 was €2,228 million, a 10.3% increase compared to the €2,021 million recorded for the six months ended June 30, 2012, mainly due to the increase in banking activity, as well as the maintenance of spreads.

Net fees and commissions

Net fees and commissions of this operating segment for the six months ended June 30, 2013 totaled €582 million, with an increase of 10.8% from the €525 million for the six months ended June 30, 2012. This increase was supported by the improvement in fees from the investment banking business and the optimization of charges for maintenance and administration of accounts.

Net gains (losses) on financial assets and liabilities and exchange differences

Net gains (losses) on financial assets and liabilities and exchange differences (net) of this operating segment for the six months ended June 30, 2013 amounted to €114 million, an 11.1% increase on the €102 million for the six months ended June 30, 2012 due to exchange differences.

Other operating income and expenses (net)

Other operating income and expenses (net) of this operating segment for the six months ended June 30, 2013 was €177 million, a 34.7% increase compared with €131 million for the six months ended June 30, 2012, principally due to growth in the insurance business.

Administration costs

Administration costs of this operating segment for the six months ended June 30, 2013 stood at €1,097 million, a 10.3% increase compared to the €994 million recorded for the six months ended June 30, 2012 due to investments made for the opening and modernization of offices and investments in technological innovation, and the process of building the new corporate headquarters in Mexico D.F.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) for the six months ended June 30, 2013 totaled €727 million, an 18% increase on the €616 million recorded for the six months ended June 30, 2012. This increase was due in part to growth in lending, but also to a further deterioration in consumer portfolios. This operating segment’s non-performing asset ratio increased to 3.9% as of June 30, 2013 from 3.7% as of December 31, 2012.

Operating profit before tax

As a result, operating profit before tax was €1,164 million, a 7.6% increase compared to the €1,082 million recorded for the six months ended June 30, 2012.

Income tax

Income tax of this operating segment for the six months ended June 30, 2012 was €288 million compared to the €260 million recorded for the six months ended June 30, 2012, mainly as a result of the increase in the operating profit before tax.

 

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Profit attributed to parent company

As a result of the above, profit attributed to parent company of this operating segment for the six months ended June 30, 2013 was €876 million, a 6.5% increase compared to the €822 million recorded for the six months ended June 30, 2012.

SOUTH AMERICA

 

     For the Six Months Ended
June 30,
       
     2013     2012R     Change  
     (In Millions of Euros)     (In %)  

Net interest income

     2,147        1,973        8.8   
  

 

 

   

 

 

   

Net fees and commissions

     454        426        6.6   

Net gains (losses) on financial assets and liabilities and net exchange differences

     326        222        47.1   

Other operating income and expenses (net)

     (316     (80     294.8   

Administration costs

     (1,067     (981     8.8   

Depreciation and amortization

     (80     (78     3.0   

Impairment losses on financial assets (net)

     (320     (234     36.4   

Provisions (net) and other gains (losses)

     (48     (75     (36.3
  

 

 

   

 

 

   

Operating profit before tax

     1,097        1,173        (6.5
  

 

 

   

 

 

   

Income tax

     (283     (259     9.3   
  

 

 

   

 

 

   

Profit from continuing operations

     814        914        (10.9
  

 

 

   

 

 

   

Profit from discontinued operations (net)

     —          —          —     
  

 

 

   

 

 

   

Profit

     814        914        (10.9
  

 

 

   

 

 

   

Profit attributed to non-controlling interests

     (253     (285     (11.2
  

 

 

   

 

 

   

Profit attributed to parent company

     561        629        (10.8
  

 

 

   

 

 

   

As discussed above under “—Factors Affecting the Comparability of our Results of Operations and Financial Condition,” the average exchange rates against the Euro of the currencies of the countries in which we operate in South America, except for the Argentine peso, the Colombian peso and the Venezuelan bolivar fuerte (which was devalued in February 2013), increased in the six months ended June 30, 2013, resulting in a positive impact on the results of operations of the South America operating segment expressed in Euro.

During the second half of 2012 we embarked on various negotiations for the sale of our pension business in South America. We reached an agreement for the sale of our stake in the Chilean company AFP Provida S.A. on February 1, 2013, and such transaction is currently pending closing. Additionally, we closed the sale (booked in the corporate center) of the Colombian company BBVA Horizonte Sociedad Administradora de Fondos de Pensiones y Cesantías S.A. and the Peruvian company AFP Horizonte S.A. on April 18, 2013 and April 23, 2013, respectively.

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2013 was €2,147 million, a 8.8% increase from the €1,973 million recorded in the six months ended June 30, 2012, mainly due to the increase in volume of customer loans and deposits during the period, despite the adjustment for hyperinflation in Venezuela, which has been greater than in previous periods.

Net fees and commissions

Net fees and commissions of this operating segment for the six months ended June 30, 2013 amounted to €454 million, a 6.6% increase from the €426 million recorded for the six months ended June 30, 2012, in line with the increased activity in the region. In addition, fees and commissions benefited from a payment by VISA of €16 million in the second quarter of 2013 related to an increase in card usage volumes.

 

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Net gains (losses) on financial assets and liabilities and net exchange differences

Net gains on financial assets and liabilities and exchange differences of this operating segment in the six months ended June 30, 2013 were €326 million, a 47.1% increase from the €222 million recorded in the six months ended June 30, 2012, mainly due to the positive effect of exchange rate differences primarily due to the appreciation of the Chilean peso and the Peruvian new sol.

Other operating income and expenses (net)

Other operating income and expenses (net) of this operating segment for the six months ended June 30, 2013, was a loss of €316 million, compared with a loss of €80 million recorded for the six months ended June 30, 2012, principally due to the impact of Venezuela being considered as a hyperinflationary economy for accounting purposes and the greater contribution made to the deposit guarantee funds in the countries in which we operate.

Administration costs

Administration costs for this operating segment for the six months ended June 30, 2013 were €1,067 million, an 8.8% increase compared to the €981 million recorded for the six months ended June 30, 2012. The main factors behind this rise have been the technological expansion and transformation plans underway, together with the high rate of inflation in some countries in the region.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) of this operating segment in the six months ended June 30, 2013 was €320 million, a 36.4% increase from the €234 million recorded for the six months ended June 30, 2012 due in part to the growth of loans and advances to customers and the worsening of the economic conditions in the countries in which we operate, compared to the six months ended June 30, 2012. This operating segment’s non-performing asset ratio increased to 2.2% as of June 30, 2013 from 2.1% as of December 31, 2012.

Operating profit before tax

As a result of the foregoing, operating profit before tax of this operating segment in the six months ended June 30, 2013 amounted to €1,097 million, a 6.5% decrease compared to the €1,173 million recorded for the six months ended June 30, 2012.

Income tax

Income tax of this operating segment for the six months ended June 30, 2013 was €283 million, a 9.3% increase from the €259 million for the six months ended June 30, 2012 as a result of a lower proportion of income with a relatively low tax rate.

Profit attributed to parent company

As a result of the foregoing profit attributed to parent company for this operating segment for the six months ended June 30, 2013 was €561 million, a 10.8% decrease compared to the €629 million recorded for the six months ended June 30, 2012.

 

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UNITED STATES

 

     For the Six Months Ended
June 30,
       
     2013     2012R     Change  
     (In Millions of Euros)     (In %)  

Net interest income

     702        786        (10.8
  

 

 

   

 

 

   

Net fees and commissions

     276        301        (8.5

Net gains (losses) on financial assets and liabilities and net exchange differences

     95        95        (0.5

Other operating income and expenses (net)

     1        (31     n.m. (1) 

Administration costs

     (643     (657     (2.0

Depreciation and amortization

     (90     (85     6.2   

Impairment losses on financial assets (net)

     (37     (42     (11.4

Provisions (net) and other gains (losses)

     (2     (28     (91.1
  

 

 

   

 

 

   

Operating profit before tax

     301        341        (11.7
  

 

 

   

 

 

   

Income tax

     (88     (108     (18.2
  

 

 

   

 

 

   

Profit from continuing operations

     213        233        (8.7
  

 

 

   

 

 

   

Profit from discontinued operations (net)

     —          —          —     
  

 

 

   

 

 

   

Profit

     213        233        (8.7
  

 

 

   

 

 

   

Profit attributed to non-controlling interests

     —          —          —     
  

 

 

   

 

 

   

Profit attributed to parent company

     213        233        (8.7
  

 

 

   

 

 

   

 

(1) Not meaningful.

As discussed above under “—Factors Affecting the Comparability of our Results of Operations and Financial Condition” in 2013 the U.S. dollar depreciated against the Euro on average terms, resulting in a negative exchange rate effect on our income statement.

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2013 was €702 million, a 10.8% decrease from the €786 million recorded in the six months ended June 30, 2012, primarily as a result of low interest rates and very flat yield curves on loans and advances to customers, which effects were partially offset by the lower costs of deposits and increased activity in demand deposits.

Net fees and commissions

Net fees and commissions of this operating segment for the six months ended June 30, 2013 were €276 million, an 8.5% decrease from the €301 million recorded in the six months ended June 30, 2012, due primarily to the coming into force of restrictive regulations on fees and commissions.

Net gains (losses) on financial assets and liabilities and net exchange differences

Net gains (losses) on financial assets and liabilities and net exchange differences of this operating segment for the six months ended June 30, 2013 and 2012 were €95 million.

Other operating income and expenses (net)

Other operating income and expenses (net) of this operating segment for the six months ended June 30, 2013 was income of €1 million, compared with an expense of €31 million for the six months ended June 30, 2012 mainly due to lower contributions to the Federal Deposit Insurance Corporation (FDIC) resulting from the lowering of the contribution requirements.

Administration costs

Administrations costs of this operating segment for the six months ended June 30, 2013 were €643 million, a 2.0% decrease from the €657 million recorded in the six months ended June 30, 2012.

 

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Depreciation and amortization

Depreciation and amortization of this operating segment for the six months ended June 30, 2013 was €90 million, a 6.2% increase from €85 million for the six months ended June 30, 2012.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) of this operating segment for the six months ended June 30, 2013 was €37 million, an 11.4% decrease from the €42 million recorded for the six months ended June 30, 2012, primarily due to the improvement in the loan-book mix. The non-performing assets ratio of this operating segment as of June 30, 2013 decreased to 1.5% from 2.4% as of December 31, 2012.

Provisions (net) and other gains (losses)

Provisions (net) and other gains (losses) for the six months ended June 30, 2013 were a loss of €2 million compared with the €28 million losses recorded for the six months ended June 30, 2012 mainly as a result of lower provisions for contingent risks.

Operating profit before tax

As a result of the foregoing the operating profit before tax for the six months ended June 30, 2013 was €301 million, a 11.7% decrease from the €341 million for the six months ended June 30, 2012.

Income tax

Income tax of this operating segment for the six months ended June 30, 2013 was €88 million, an 18.2% decrease from the €108 million recorded in the six months ended June 30, 2012 as a result of the decrease in the operating profit before tax.

Profit attributed to parent company

Profit attributed to parent company of this operating segment for the six months ended June 30, 2013 was €213 million, compared to the €233 million recorded in the six months ended June 30, 2012.

CORPORATE CENTER

 

    

For the Six Months Ended

June 30,

       
     2013     2012R     Change  
     (In Millions of Euros)     (In %)  

Net interest income

     (360     (195     84.3   
  

 

 

   

 

 

   

Net fees and commissions

     (48     (36     31.1   

Net gains (losses) on financial assets and liabilities and net exchange differences

     214        111        93.0   

Other operating income and expenses (net)

     18        218        (91.9

Administration costs

     (336     (345     (2.8

Depreciation and amortization

     (211     (154     36.9   

Impairment losses on financial assets (net)

     —          (9     n.m. (1) 

Provisions (net) and other gains (losses)

     (23     (53     (56.5
  

 

 

   

 

 

   

Operating profit/loss before tax

     (745     (464     60.6   
  

 

 

   

 

 

   

Income tax

     176        221        (20.3
  

 

 

   

 

 

   

Profit from continuing operations

     (569     (243     134.3   
  

 

 

   

 

 

   

Profit from discontinued operations (net)

     1,393        172        n.m. (1) 
  

 

 

   

 

 

   

Profit

     824        (71     n.m. (1) 
  

 

 

   

 

 

   

Profit attributed to non-controlling interests

     (134     (37     266.1   
  

 

 

   

 

 

   

Profit attributed to parent company

     690        (108     n.m. (1) 
  

 

 

   

 

 

   

 

(1) Not meaningful.

 

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Net interest income

Net interest income of this operating segment for the six months ended June 30, 2013 was an expense of €360 million compared with an expense of €195 million recorded in the six months ended June 30, 2012. Net interest income has been negatively affected by the rising cost of wholesale finance resulting from the instability in the Euro zone area throughout 2012, which had a negative impact in our interest expenses for the six months ended June 30, 2013 as a result of the wholesale funding raised in 2012.

Net fees and commissions

Net fees and commissions of this operating segment amounted to an expense of 48 million for the six months ended June 30, 2013, a 31.1% increase from the €36 million expense recorded for the six months ended June 30, 2012, mainly as a result of lower income from mutual fund fees.

Net gains (losses) on financial assets and liabilities and net exchange differences

Net gains (losses) on financial assets and liabilities and net exchange differences of this operating segment for the six months ended June 30, 2013 were a gain of €214 million, compared with a gain of €111 million in the six months ended June 30, 2012, primarily as a result of the structural management of exchange rates and capital gains derived from the sale of some securities portfolios.

Other operating income and expenses (net)

Other operating income and expenses (net) of this operating segment for the six months ended June 30, 2013 was a gain of €18 million, a 91.9% decrease compared with the gain of €218 million recorded in the six months ended June 30, 2012, mainly as a result of lower income from dividends.

Administration costs

Administration costs of this operating segment for the six months ended June 30, 2013 were €336 million, a 2.8% decrease from the €345 million recorded in the six months ended June 30, 2012.

Depreciation and amortization

Depreciation and amortization of this operating segment for the six months ended June 30, 2013 was €211 million, a 36.9% increase from the €154 million recorded for the six months ended June 30, 2012, primarily due to charges related to corporate offices and software amortization.

Impairment losses on financial assets (net)

No impairment losses on financial assets (net) of this operating segment were registered in the six months ended June 30, 2013 compared to a loss of €9 million recorded for the six months ended June 30, 2012, when higher provisions for loan losses were made to increase the Group’s coverage ratio in light of the adverse economic conditions.

Provisions (net) and other gains (losses)

Provisions (net) and other gains (losses) for the six months ended June 30, 2013 was an expense of €23 million, a 56.5% decrease from the €53 million expense recorded in the six months ended June 30, 2012.

 

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Operating loss before tax

As a result of the foregoing the operating loss before tax for the six months ended June 30, 2013 was €745 million, compared to €464 million for the six months ended June 30, 2012.

Income tax

Income tax of this operating segment for the six months ended June 30, 2013 was a benefit of €176 million, a 20.3% decrease from the benefit of €221 million recorded in the six months ended June 30, 2012, mainly as a result of lower proportion of income with a relatively low tax rate.

Profit from discontinued operations

Profit from discontinued operations for this segment for the six months ended June 30, 2013 was €1,393 million compared to €172 million in the six months ended June 30, 2012. This increase is due to the profit from the sale of the pension business in South America and Mexico and the income of this business.

Profit attributed to parent company

Profit attributed to parent company of this operating segment for the six months ended June 30, 2013 was a profit of €690 million, compared with a loss of €108 million in the six months ended June 30, 2012.

 

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RECONCILIATION BETWEEN OPERATING SEGMENTS AND GROUP’S INCOME STATEMENT

The below table reconciles the income statement of our various operating segments and our Corporate Center to the consolidated income statement of the Group. The “Adjustments” column consists of amounts included in the Eurasia segment from the proportionate consolidation of Garanti and entities of the Garanti group which must be backed out for purposes of our consolidated financial information given that in accordance with IFRS 11 we are required to account for Garanti and the entities of the Garanti group using the equity method from January 1, 2013.

 

    For the Six Months Ended June 30, 2013  
    Spain     Real estate
in Spain
    Eurasia     Mexico     United
States
    South
America
    Corporate
center
    Total     Adjustments     Group
Income
 
    (In Millions of Euros)  

Net interest income

    2,053        42        490        2,228        702        2,147        (360     7,302        (403     6,899   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net fees and commissions

    703        5        206        582        276        454        (48