6-K 1 d795335d6k.htm 6-K 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, 2014

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

     3   

Selected Consolidated Financial Data

     3   

Business Overview

     6   

Selected Statistical Information

     12   

Operating and Financial Review and Prospects

     30   

Other Information

     57   

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.


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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 Grupo Financiero BBVA Bancomer, S.A. de C.V. 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, 2014 and for the six months ended June 30, 2014 and 2013 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, unless otherwise indicated or the context otherwise requires.

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”,

 

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“anticipate”, “should”, “intend”, “probability”, “risk”, “VaR”, “target”, “goal”, “objective” and similar expressions or variations on such expressions and include statements regarding future growth rates. 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 the items listed below, identifies important factors that could cause such differences:

 

    “Business Overview”,

 

    “Selected Statistical Information” and

 

    “Operating and Financial Review and Prospects”

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.

 

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PRESENTATION OF FINANCIAL INFORMATION

Accounting Principles

Under Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of July 19, 2002, all companies governed by the law of an EU Member State and whose securities are admitted to trading on a regulated market of any Member State must prepare their consolidated financial statements for the years beginning on or after January 1, 2005 in conformity with EU-IFRS. The Bank of Spain issued Circular 4/2004 of December 22, 2004 on Public and Confidential Financial Reporting Rules and Formats (as amended or supplemented from time to time, “Circular 4/2004”), which requires Spanish credit institutions to adapt their accounting system to the principles derived from the adoption by the European Union of EU-IFRS.

Differences between EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 and IFRS-IASB are not material for the six-month periods ended June 30, 2014 and 2013. Accordingly, the Interim Consolidated Financial Statements included in this report on Form 6-K have been 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.

Operating segments

As mentioned in Note 6 to our Interim Consolidated Financial Statements, the composition of the operating segments in the six months ended June 30, 2014 has remained the same as in 2013.

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, 2014 and 2013 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”.

 

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     Six Months Ended June 30,  
     2014     2013     Change  
     (In Millions of Euros, Except Per Share/ADS Data
(In Euros))
 

Consolidated Statement of Income Data

      

Interest and similar income

     11,000        11,831        (7.0 )% 

Interest and similar expenses

     (4,276     (4,932     (13.3 )% 

Net interest income

     6,724        6,899        (2.5 )% 

Dividend income

     370        65        n.m. (1) 

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

     155        407        (61.9 )% 

Fee and commission income

     2,617        2,692        (2.8 )% 

Fee and commission expenses

     (625     (611     2.3

Net gains(losses) on financial assets and liabilities

     978        794        23.2

Net exchange differences

     173        515        (66.4 )% 

Other operating income

     2,242        2,554        (12.2 )% 

Other operating expenses

     (2,552     (2,711     (5.9 )% 

Administration costs

     (4,542     (4,833     (6.0 )% 

Depreciation and amortization

     (548     (535     2.4

Provisions (net)

     (433     (273     58.6

Impairment losses on financial assets (net)

     (2,126     (2,635     (19.3 )% 

Impairment losses on other assets (net)

     (98     (214     (54.2 )% 

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

     14        693        (98.0 )% 

Negative goodwill

     —          —          n.m. (1) 

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

     (281     (309     (9.1 )% 

Operating profit before tax

     2,067        2,498        (17.3 )% 

Income tax

     (524     (601     (12.8 )% 

Profit from continuing operations

     1,544        1,897        (18.6 )% 

Profit from discontinued operations (net)

     —          1,393        (100.0 )% 

Profit

     1,544        3,290        (53.1 )% 

Profit attributable to parent company

     1,328        2,882        (53.9 )% 

Profit attributable to non-controlling interests

     215        408        (47.3 )% 

Per share/ADS(1) Data

      

Number of shares outstanding (at period end)

     5,887,168,710        5,724,326,491     

Profit attributable to parent company (2)

     0.23        0.50     

Dividends declared

     0.080        0.100     

 

(*) 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 2013 and October 2013 and April 2014, and excluding the weighted average number of treasury shares during the period (5,815 million and 5,817 million for the six months ended June 30, 2014 and 2013, respectively). See Note 5 to the Interim Consolidated Financial Statements.

 

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     As of and for
the Six Months
ended June 30,
2014
    As of and for the
Year ended
December 31,
2013
    As of and for the
Six Months
ended June 30,
2013
 
     (In Millions of Euros, Except Percentages)  

Consolidated balance sheet data

      

Total assets

     599,420        582,575        600,997   

Common stock

     2,885        2,835        2,805   

Loans and receivables (net)

     359,084        350,945        369,050   

Customer deposits

     310,442        300,490        301,508   

Debt certificates and subordinated liabilities

     75,303        74,676        89,606   

Non-controlling interest

     2,048        2,371        2,205   

Total equity

     46,867        44,850        47,398   

Consolidated ratios

      

Profitability ratios:

      

Net interest margin(1)

     2.30     2.32     2.26

Return on average total assets(2)

     0.5     0.5     1.1

Return on average equity(3)

     5.8     5.0     13.2

Credit quality data

      

Loan loss reserve(4)

     14,726        14,995        14,393   

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

     4.10     4.27     3.90

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

     6.57     6.95     5.65

Impaired loans and advances to customers

     24,159        25,445        21,463   

Impaired contingent liabilities to customers(6)

     414        410        403   
  

 

 

   

 

 

   

 

 

 
     24,573        25,855        21,866   
  

 

 

   

 

 

   

 

 

 

Loans and advances to customers

     341,931        338,557        352,738   

Contingent liabilities to customers

     34,998        36,183        33,999   
  

 

 

   

 

 

   

 

 

 
     376,929        374,740        386,737   
  

 

 

   

 

 

   

 

 

 

 

(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, 2014 and 2013, respectively, net interest income is annualized by multiplying the net interest income for the period by two.
(2) Represents profit as a percentage of average total assets. In order to calculate “Return on average total assets” for the six months ended June 30, 2014 and 2013, respectively, profit is annualized by multiplying the profit for the period by two.
(3) Represents profit attributable to parent company as a percentage of average equity, excluding “Non-controlling interest”. In order to calculate “Return on average equity” for the six months ended June 30, 2014 and 2013, respectively, profit attributable to parent company is annualized by multiplying the profit attributable to parent company for the period by two.
(4) Represents 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 7.1% as of June 30, 2014, 7.5% as of December 31, 2013 and 6.1% as of June 30, 2013.

 

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Exchange Rates

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

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

 

Year ended December 31

   Average(1)  

2009

     1.3955   

2010

     1.3216   

2011

     1.4002   

2012

     1.2908   

2013

     1.3303   

2014 (through October, 17, 2014)

     1.3421   

 

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

 

Month ended

   High      Low  

March 31, 2014

     1.3927         1.3731   

April 30, 2014

     1.3898         1.3704   

May 31, 2014

     1.3924         1.3596   

June 30, 2014

     1.3690         1.3522   

July 31, 2014

     1.3681         1.3378   

August 31, 2014

     1.3436         1.3150   

September 30, 2014

     1.3136         1.2628   

October 31, 2014 (through October 17, 2014)

     1.2812         1.2517   

The noon buying rate for euro from the Federal Reserve Bank of New York, expressed in dollars per €1.00, on September 19, 2014, was $1.2835.

As of June 30, 2014, approximately 40% of our assets and approximately 40% 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

Set forth below are the Group’s current six operating segments:

 

    Banking Activity in Spain

 

    Real Estate Activity in Spain

 

    Eurasia

 

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    Mexico

 

    South America

 

    United States

In addition to the operating segments referred to above, the Group has a Corporate Center which includes those items that have not been allocated to an operating segment. It includes the Group’s 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 adequate management of the Group’s overall capital position; proprietary portfolios such as industrial holdings and their corresponding results; certain tax assets and liabilities; provisions related to commitments with pensioners; and goodwill and other intangibles.

The breakdown of the Group’s total assets by operating segments as of June 30, 2014 and December 31, 2013 is as follows:

 

Total Assets by Operating Segment     
     As of June 30, 2014     As of December 31, 2013 (***)  
     (In Millions of Euros)  

Banking Activity in Spain

     321,746        314,902   

Real Estate Activity in Spain

     19,462        20,582   

Eurasia (*)

     42,377        41,223   

Mexico

     88,479        81,801   

South America

     73,038        77,874   

United States

     56,845        53,046   
  

 

 

   

 

 

 

Subtotal Assets of Operating Segments

     601,947        589,428   
  

 

 

   

 

 

 

Corporate Center and other adjustments (**)

     (2,527     (6,853
  

 

 

   

 

 

 

Total Assets BBVA Group

     599,420        582,575   
  

 

 

   

 

 

 

 

(*) The information is presented under management criteria, pursuant to which Türkiye Garanti Bankasi A.S.’s (“Garanti”) information has been proportionally integrated based on our 25.01% interest in Garanti.
(**) Other adjustments include adjustments made to account for the fact that, in our Interim Consolidated Financial Statements, Garanti is accounted for using the equity method rather than using the management criteria referred to above.
(***) There are minor restatements relating to, among others, the reclassification of our business in Panama (sold in 2013) to the Corporate Center.

The following table sets forth information relating to the profit attributable to the parent company by each of BBVA’s operating segments for the six months ended June 30, 2014 and 2013.

 

     Profit/(Loss)
Attributable to Parent
Company
    % of Profit/(Loss)
Attributable to Parent
Company
 
     Six months ended June 30,  
     2014     2013     2014     2013  
     (In Millions of Euros)     (In Percentage)  

Banking Activity in Spain

     608        756        45.8        26.2   

Real Estate Activity in Spain

     (446     (628     (33.6     (21.8

Eurasia

     362        352        27.3        12.2   

Mexico

     900        872        67.8        30.3   

South America

     483        549        36.4        19.0   

United States

     196        203        14.8        7.1   
  

 

 

   

 

 

     

Subtotal operating segments

     2,103        2,105       
  

 

 

   

 

 

     

Corporate Center

     (775     777       
  

 

 

   

 

 

     

Profit attributable to parent company

     1,328        2,882       
  

 

 

   

 

 

     

 

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The following table sets forth information relating to the income of each operating segment for the six months ended June 30, 2014 and 2013 and reconciles the income statement of the various operating segments to the consolidated income statement of the Group:

 

     Operating Segments                            
     Banking
Activity
in Spain
     Real
Estate
Activity
in
Spain
    Eurasia(*)      Mexico      South
America
     United
States
     Corporate
Center
    Total      Adjust-ments
(**)
    BBVA
Group
 
     (In Millions of Euros)  

June 2014

                          

Net interest income

     1,867         (18     408         2,354         2,061         693         (326     7,038         (314     6,724   

Operating profit/(loss) before tax

     867         (619     447         1,188         959         266         (999     2,109         (42     2,067   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Profit

     608         (446     362         900         483         196         (774     1,328         —          1,328   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

June 2013

                          

Net interest income

     2,057         43        489         2,227         2,124         699         (336     7,302         (403     6,899   

Operating profit/(loss) before tax

     446         (846     440         1,161         1,079         302         (734     1,848         650        2,498   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Profit

     756         (628     352         872         549         203         777        2,882         —          2,882   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(*) The information is presented under management criteria, pursuant to which Garanti’s information has been proportionally integrated based on our 25.01% interest in Garanti.
(**) Other adjustments include adjustments made to account for the fact that, in our Interim Consolidated Financial Statements, Garanti is accounted for using the equity method rather than using the management criteria referred above.

Banking Activity in Spain

The Banking Activity in Spain operating segment includes all of BBVA’s banking and non-banking businesses in Spain, other than those included in the Corporate Center area 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 (SMEs), companies and corporations, public institutions and developer segments;

 

    Corporate and Investment Banking (C&IB): responsible for business with large corporations and multinational groups and the trading floor and distribution business in Spain; and

 

    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.

 

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The following table sets forth information relating to the activity of this operating segment as of June 30, 2014 and December 31, 2013:

 

Banking Activity in Spain      
     As of June 30,
2014
     As of December 31,
2013
 
     (In Millions of Euros)  

Total Assets

     321,746         314,902   

Loans and advances to customers

     178,678         178,283   

Customer deposits under management

     162,241         157,124   

Mutual funds

     25,752         23,018   

Pension funds

     21,364         20,427   

NPA ratio (%)

     6.3         6.4   

Loans and advances to customers of this operating segment as of June 30, 2014 amounted to €178,678 million, a 0.2% increase from the €178,283 million recorded as of December 31, 2013, as a result of an increase in consumer loans and, to a lesser extent, an increase in mortgage loans and loans for small businesses.

Customer deposits under management of this operating segment as of June 30, 2014 amounted to €162,241 million, a 3.3% increase from the €157,124 million recorded as of December 31, 2013. This increase has been recorded despite the reduction in remuneration paid on new deposits, as a result of the low interest rate environment.

Mutual funds of this operating segment as of June 30, 2014 amounted to €25,752 million, an 11.9% increase from the €23,018 million recorded as of December 31, 2013. Pension funds amounted to €21,364 million as of June 30, 2014, a 4.6% increase from the €20,427 million recorded as of December 31, 2013. These increases are mainly the result of the active marketing of a diversified portfolio of mutual and pension funds to certain customer segments.

This operating segment’s non-performing asset ratio decreased to 6.3% as of June 30, 2014, from 6.4% as of December 31, 2013. This operating segment non-performing assets coverage ratio was 44% as of June 30, 2014 compared with 41% as of December 31, 2013.

Real Estate Activity in Spain

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

Our exposure to the developer and residential segments has shown different evolutions. On the one hand, net exposure to the developer segment (i.e., lending to developers plus foreclosed assets) continues to fall and is expected to continue declining in the future. On the other, we are facing increased retail foreclosures (i.e. those relating to the residential mortgage sector for individuals). This recent increase is linked to the increase in gross additions to non-performing assets in this portfolio experienced in the past. The rate of such additions has slowed in six months ended June 30, 2014 compared to the year ended December 31, 2014. With respect to sales of real estate assets, including third-party and developer, the number of units sold showed a year-on-year growth of 15.6% in the six months ended June 30, 2014.

Eurasia

This operating segment covers the retail and wholesale banking businesses of the Group in the rest of Europe and Asia. It also includes BBVA’s stakes in the Turkish bank Garanti and the Chinese banks China CITIC Bank Corporation Limited (“CNCB”) and CITIC International Financial Holdings Ltd (“CIFH”). Following management criteria, assets and liabilities corresponding to our 25.01% stake in Garanti are included in every balance sheet line.

 

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The following table sets forth information relating to the business activity of this operating segment as of June 30, 2014 and December 31, 2013:

 

Eurasia      
     As of June 30,
2014
     As of December 31,
2013
 
     (In Millions of Euros)  

Total Assets

     42,377         41,223   

Loans and advances to customers

     28,635         28,397   

Customer deposits under management

     18,089         17,634   

Off-balance sheet funds (*)

     2,264         1,966   

NPA ratio (%)

     3.5         3.4   

 

(*) Assets under management.

Loans and advances to customers of this operating segment as of June 30, 2014 amounted to €28,635 million, a 0.8% increase from the €28,397 million recorded as of December 31, 2013, as a result of the evolution of the Garanti portfolios, particularly loans denominated in Turkish Lira, with a positive trend of consumer and mortgage portfolios.

Customer deposits under management of this operating segment as of June 30, 2014 amounted to €18,089 million, a 2.6% increase from the €17,634 million recorded as of December 31, 2013, as a result of increased volume in deposits of Garanti.

Off-balance sheet funds of this operating segment as of June 30, 2014 amounted to €2,264 million, a 12.3% increase from the €1,966 million recorded as of December 31, 2013 due to the growth of mutual funds in foreign branches and pensions funds in Turkey.

This operating segment’s non-performing asset ratio increased to 3.5% as of June 30, 2014 from 3.4% as of December 31, 2013, mainly as a result of a lower volume of contingent risks. This operating segment non-performing assets coverage ratio was 89% as of June 30, 2014 compared with 87% as of December 31, 2013.

Mexico

The Mexico operating segment comprises the banking and insurance businesses conducted in Mexico by the BBVA Bancomer financial group. The following table sets forth information relating to the business activity of this operating segment as of June 30, 2014 and December 31, 2013:

 

Mexico      
     As of June 30,
2014
     As of December 31,
2013
 
     (In Millions of Euros)  

Total Assets

     88,479         81,801   

Loans and advances to customers

     43,157         40,668   

Customer deposits under management

     46,030         42,452   

Off-balance sheet funds (*)

     18,362         16,896   

NPA ratio (%)

     3.4         3.6   

 

(*) Assets under management.

 

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Loans and advances to customers of this operating segment as of June 30, 2014 amounted to €43,157 million, a 6.1% increase from the €40,668 million recorded as of December 31, 2013, mainly due to the increase in commercial and consumer loans.

Customer deposits under management of this operating segment as of June 30, 2014 amounted to €46,030 million, an 8.4% increase from the €42,452 million recorded as of December 31, 2013, mainly as a result of increased demand and fixed-term deposits.

Off-balance sheet funds of this operating segment as of June 30, 2014 amounted to €18,362 million, a 5.0% increase from the €16,896 million recorded as of December 31, 2013, mainly as a result of a marketing campaign to boost corporate banking.

This operating segment’s non-performing asset ratio decreased to 3.4% as of June 30, 2014, from 3.6% as of December 31, 2013. This operating segment non-performing assets coverage ratio increased to 113% as of June 30, 2014, from 110% as of December 31, 2013. Both changes are mainly as a result of the year-on-year increase in loans and advances to customers, which has exceeded the year-on-year increase in non-performing loans.

South America

The South America operating segment manages the BBVA Group’s banking and insurance businesses in the region.

The business units included in the South America operating segment are:

 

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

 

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

The following table sets forth information relating to the business activity of this operating segment as of June 30, 2014 and December 31, 2013:

 

South America      
     As of June 30,
2014
     As of December 31,
2013
 
     (In Millions of Euros)  

Total Assets

     73,038         77,874   

Loans and advances to customers

     47,609         48,466   

Customer deposits under management

     50,343         55,167   

Off-balance sheet funds (*)

     6,999         6,552   

NPA ratio (%)

     2.1         2.1   

 

(*) Assets under management

Loans and advances to customers of this operating segment as of June 30, 2014 amounted to €47,609 million, a 1.8% decrease from the €48,466 million recorded as of December 31, 2013, as a result of the negative effect of exchange rate fluctuations, mainly in Argentina and Venezuela, which offset the increase in activity.

Customer deposits under management of this operating segment as of June 30, 2014 amounted to €50,343 million, an 8.7% decrease from the €55,167 million recorded as of December 31, 2013, as a result of the negative effect of exchange rate fluctuations, mainly in Argentina and Venezuela, which offset the increase in activity.

 

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Off-balance sheet funds of this operating segment as of June 30, 2014 amounted to €6,999 million, a 6.8% increase from the €6,552 million recorded as of December 31, 2013, mainly as a result of the growth of pension funds.

This operating segment’s non-performing asset ratio was 2.1% as of June 30, 2014 and December 31, 2013. This operating segment non-performing assets coverage ratio decreased to 138% as of June 30, 2014 from 142% as of December 31, 2013.

United States

This operating segment encompasses the Group’s business in the United States. BBVA Compass accounted for approximately 93% of the area’s balance sheet as of June 30, 2014. Given its weight, most of the comments below refer to BBVA Compass. This operating segment also covers the assets and liabilities of the BBVA office in New York, which specializes in transactions with large corporations.

The following table sets forth information relating to the business activity of this operating segment as of June 30, 2014 and December 31, 2013:

 

The United States      
     As of June 30,
2014
     As of December 31,
2013
 
     (In Millions of Euros)  

Total Assets

     56,845         53,046   

Loans and advances to customers

     41,497         38,067   

Customer deposits under management

     44,024         39,844   

NPA ratio (%)

     0.9         1.2   

Loans and advances to customers of this operating segment as of June 30, 2014 amounted to €41,497 million, a 9.0% increase from the €38,067 million recorded as of December 31, 2013, as a result of a widespread growth in all of the segment’s portfolios.

Customer deposits under management of this operating segment as of June 30, 2014 amounted to €44,024 million, a 10.5% increase from the €39,844 million recorded as of December 31, 2013, mainly as a result of the campaigns designed to attract deposits.

This operating segment’s non-performing asset ratio decreased to 0.9% as of June 30, 2014, from 1.2% as of December 31, 2013, as a result of a decrease in non-performing loans and a growth of loans and advances to customers (mainly in the commercial loan portfolio). This operating segment non-performing assets coverage ratio increased to 168% as of June 30, 2014, from 135% as of December 31, 2013, as a result of the decrease in non-performing assets.

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 year. 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, 2014     Six Months ended June 30, 2013  
     Average
Balance
     Interest      Average
Yield (1)
    Average
Balance
     Interest      Average
Yield (1)
 
     (In Millions of Euro, Except Percentages)  

Assets

                

Cash and balances with central banks

     25,996         110         0.85     27,545         142         1.04

Debt securities, equity instruments and derivatives

     168,490         2,179         2.61     169,602         2,191         2.61

Loans and receivables

     345,431         8,647         5.01     366,899         9,433         5.14

Loans and advances to credit institutions

     22,843         152         1.34     26,194         201         1.55

Loans and advances to customers

     322,588         8,495         5.31     340,705         9,232         5.46

In euro(2)

     189,074         2,507         2.67     210,125         3,186         3.06

In other currencies(3)

     133,514         5,988         9.04     130,580         6,046         9.34

Other finance income

     —           —           —          —           —           —     

Non-earning assets

     44,124         64         0.29     46,213         65         0.28
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total average assets

     584,042         11,000         3.80     610,259         11,831         3.91
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

(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, 2014     Six Months ended June 30, 2013  
     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

     80,329         679         1.70     89,977         817         1.83

Customer deposits

     298,443         2,190         1.48     286,906         2,311         1.62

In euro(2)

     159,072         960         1.22     150,832         996         1.33

In other currencies(3)

     139,370         1,230         1.78     136,074         1,315         1.95

Debt securities and subordinated liabilities

     81,070         947         2.36     100,907         1,385         2.77

Other financial costs

     —           —           —          —           —           —     

Non-interest-bearing liabilities

     79,086         459         1.17     86,041         419         0.98

Stockholders’ equity

     45,113         —           —          46,428         —           —     
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total average liabilities

     584,042         4,276         1.48     610,259         4,932         1.63
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

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

 

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Changes in Net Interest Income-Volume and Rate Analysis

The following tables allocate changes in our net interest income between changes in volume and changes in rate for the six months ended June 30, 2014 compared to the six months ended June 30, 2013 and 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, 2014/June 30, 2013  
     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

     (8     (24     (32

Securities portfolio and derivatives

     (14     3        (12

Loans and advances to credit institutions

     (26     (24     (49

Loans and advances to customers

     (491     (246     (737

In Euros

     (319     (360     (679

In other currencies

     136        (193     (58

Other assets

     —          2        2   
  

 

 

   

 

 

   

 

 

 

Total income

         (831
  

 

 

   

 

 

   

 

 

 

Interest expense

      

Deposits from central banks and credit institutions

     (88     (50     (138

Customer deposits

     93        (214     (121

In Euros

     54        (90     (36

In other currencies

     32        (117     (85

Debt certificates and subordinated liabilities

     (272     (166     (438

Other liabilities

     (33     74        41   
  

 

 

   

 

 

   

 

 

 

Total expense

         (656
  

 

 

   

 

 

   

 

 

 

Net interest income

         (175
  

 

 

   

 

 

   

 

 

 

 

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

 

     For the Six Months Ended June 30, 2013/June 30, 2012  
     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

         (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

         (76
  

 

 

   

 

 

   

 

 

 

Net interest income

         (162
  

 

 

   

 

 

   

 

 

 

 

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

 

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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 years indicated.

 

     Six Months Ended June 30,  
     2014(*)     2013(*)  
     (In Millions of Euros, except %)  

Average interest earning assets

     539,918        564,046   

Gross yield(1)

     4.07     4.20

Net yield(2)

     3.77     3.88

Net interest margin (3)

     2.49     2.45

Average effective rate paid on all interest-bearing liabilities

     1.86     2.06

Spread(4)

     2.22     2.13

 

(*) Ratios are annualized by multiplying six month figures by two.
(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, 2014, interbank deposits represented 4.2% of our total assets. Of such interbank deposits, 20.2% were held outside of Spain and 79.8% 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, 2014, our securities were carried on our consolidated balance sheet at a carrying amount of €126,921 million, representing 21.2% of our total assets. €40,165 million, or 31.7%, of our securities consisted of Spanish Treasury bonds and Treasury bills. The average yield for the six months ended June 30, 2014 on investment securities that BBVA held was 3.7%, compared to an average yield of approximately 5.0% earned on loans and receivables for the six months ended June 30, 2014. The fair value of our total securities portfolio as of June 30, 2014, was €126,921 million. See Notes 10, 12 and 14 to the Interim Consolidated Financial Statements. For a discussion of our investments in affiliates, see Note 17 to the Interim Consolidated Financial Statements. For a discussion of the manner in which we value our securities, see Notes 2.2.1 and 8 to the Interim Consolidated Financial Statements.

The following tables analyze the carrying amount and fair value of debt securities as of June 30, 2014 and December 31, 2013, respectively. 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.

 

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     As of June 30, 2014  
     Amortized cost      Fair Value (1)      Unrealized Gains      Unrealized Losses  
     (In Millions of Euros)  

DEBT SECURITIES -

           

AVAILABLE FOR SALE PORTFOLIO

           
  

 

 

    

 

 

    

 

 

    

 

 

 

Domestic-

     39,799         41,834         2,090         (55
  

 

 

    

 

 

    

 

 

    

 

 

 

Spanish Government and other government agencies debt securities

     32,880         34,715         1,878         (44

Other debt securities

     6,919         7,119         212         (11

Issued by Central Banks

     —           —           —           —     

Issued by credit institutions

     4,695         4,830         136         —     

Issued by other institutions

     2,224         2,289         75         (11
  

 

 

    

 

 

    

 

 

    

 

 

 

International-

     39,319         40,397         1,490         (412
  

 

 

    

 

 

    

 

 

    

 

 

 

Mexico

     11,635         12,163         588         (60

Mexican Government and other government agencies debt securities

     10,066         10,546         528         (48

Other debt securities

     1,569         1,616         60         (12

Issued by Central Banks

     —           —           —           —     

Issued by credit institutions

     136         143         10         (3

Issued by other institutions

     1,433         1,473         49         (10

The United States

     8,043         8,053         92         (82

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

     363         362         —           (1

States and political subdivisions debt securities

     2,318         2,336         23         (5

Other debt securities

     5,362         5,355         69         (76

Issued by Central Banks

     —           —           —           —     

Issued by credit institutions

     44         46         3         —     

Issued by other institutions

     5,318         5,308         66         (76

Other countries

     19,642         20,181         810         (270

Other foreign governments and other government agencies debt securities

     10,500         10,824         495         (172

Other debt securities

     9,142         9,358         314         (98

Issued by Central Banks

     1,261         1,260         2         (3

Issued by credit institutions

     3,290         3,402         168         (55

Issued by other institutions

     4,591         4,696         145         (40
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL AVAILABLE FOR SALE PORTFOLIO

     79,118         82,231         3,580         (467
  

 

 

    

 

 

    

 

 

    

 

 

 

HELD TO MATURITY PORTFOLIO

           
  

 

 

    

 

 

    

 

 

    

 

 

 

Domestic-

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

International-

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL HELD TO MATURITY PORTFOLIO

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL DEBT SECURITIES

     79,118         82,231         3,580         (467
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

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Table of Contents
     As of December 31, 2013  
     Amortized cost      Fair Value (1)      Unrealized Gains      Unrealized Losses  
     (In Millions of Euros)  

DEBT SECURITIES -

           

AVAILABLE FOR SALE PORTFOLIO

           
  

 

 

    

 

 

    

 

 

    

 

 

 

Domestic-

     39,224         40,116         1,008         (115
  

 

 

    

 

 

    

 

 

    

 

 

 

Spanish Government and other government agencies debt securities

     30,688         31,379         781         (90

Other debt securities

     8,536         8,738         227         (25

Issued by Central Banks

     —           —           —           —     

Issued by credit institutions

     5,907         6,027         124         (4

Issued by other institutions

     2,629         2,711         103         (21
  

 

 

    

 

 

    

 

 

    

 

 

 

International-

     31,323         31,690         956         (589
  

 

 

    

 

 

    

 

 

    

 

 

 

Mexico

     10,433         10,583         328         (178

Mexican Government and other government agencies debt securities

     9,028         9,150         281         (160

Other debt securities

     1,404         1,433         47         (19

Issued by Central Banks

     —           —           —           —     

Issued by credit institutions

     84         93         11         (2

Issued by other institutions

     1,320         1,340         36         (16

The United States

     5,962         5,937         58         (82

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

     171         170         3         (4

States and political subdivisions debt securities

     884         885         8         (7

Other debt securities

     4,907         4,881         46         (72

Issued by Central Banks

     —           —           —           —     

Issued by credit institutions

     234         233         2         (2

Issued by other institutions

     4,674         4,648         44         (70

Other countries

     14,928         15,170         570         (329

Other foreign governments and other government agencies debt securities

     7,128         7,199         333         (261

Other debt securities

     7,801         7,971         237         (67

Issued by Central Banks

     1,209         1,208         9         (10

Issued by credit institutions

     4,042         4,166         175         (51

Issued by other institutions

     2,550         2,597         54         (6
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL AVAILABLE FOR SALE PORTFOLIO

     70,547         71,806         1,964         (704
  

 

 

    

 

 

    

 

 

    

 

 

 

HELD TO MATURITY PORTFOLIO

           
  

 

 

    

 

 

    

 

 

    

 

 

 

Domestic-

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

International-

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL HELD TO MATURITY PORTFOLIO

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL DEBT SECURITIES

     70,547         71,806         1,964         (704
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

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Table of Contents

The following tables set forth the carrying amount and fair value of our ownership of equity securities as of June 30, 2014 and December 31, 2013, respectively. See Note 10 to the Interim Consolidated Financial Statements.

 

     As of June 30, 2014  
     Amortized cost      Fair Value(1)      Unrealized Gains      Unrealized Losses  
     (In Millions of Euros)  

EQUITY SECURITIES -

           

AVAILABLE FOR SALE PORTFOLIO

           

Domestic-

     3,299         3,502         205         (2

Equity listed

     3,250         3,453         204         (1

Equity unlisted

     49         49         1         (1

International-

     2,732         3,026         308         (15

United States-

     489         489         —           —     

Equity listed

     47         47         —           —     

Equity unlisted

     442         442         —           —     

Other countries-

     2,242         2,536         308         (15

Equity listed

     2,117         2,400         297         (15

Equity unlisted

     125         137         11         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL AVAILABLE FOR SALE PORTFOLIO

     6,031         6,528         513         (17
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL EQUITY SECURITIES

     6,031         6,528         513         (17
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL INVESTMENT SECURITIES

     85,149         88,759         4,093         (484
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

     As of December 31, 2013  
     Amortized cost      Fair Value(1)      Unrealized Gains      Unrealized Losses  
     (In Millions of Euros)  

EQUITY SECURITIES -

           

AVAILABLE FOR SALE PORTFOLIO

           

Domestic-

     3,331         3,337         54         (47

Equity listed

     3,270         3,277         54         (46

Equity unlisted

     61         60         —           (1

International-

     2,584         2,629         55         (10

United States-

     471         471         —           —     

Equity listed

     16         16         —           —     

Equity unlisted

     455         455         —           —     

Other countries-

     2,113         2,158         55         (10

Equity listed

     2,014         2,051         46         (9

Equity unlisted

     99         107         9         (1
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL AVAILABLE FOR SALE PORTFOLIO

     5,915         5,966         109         (57
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL EQUITY SECURITIES

     5,915         5,966         109         (57
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL INVESTMENT SECURITIES

     76,462         77,772         2,073         (761
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Fair values for listed securities are determined on the basis of their quoted prices at the end of the year. Fair 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 investment and fixed income securities, excluding trading portfolio, by type and geographical area as of June 30, 2014.

 

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

DEBT SECURITIES

                          

AVAILABLE-FOR-SALE PORTFOLIO

                          

Domestic

                          

Spanish government and other government agencies debt securities

     1,876         3.52         11,523         3.48         12,956         4.34         8,360         4.92         34,715   

Other debt securities

     2,619         3.54         3,463         4.00         680         3.44         358         4.83         7,119   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Domestic

     4,495         3.53         14,985         3.61         13,636         4.28         8,717         4.91         41,834   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

International

                    

Mexico

     1,379         3.67         5,405         4.06         1,492         3.53         3,887         3.88         12,163   

Mexican Government and other government agencies debt securities

     995         3.51         4,894         4.05         1,234         3.41         3,423         3.92         10,546   

Other debt securities

     384         4.06         511         4.20         258         4.07         464         3.73         1,616   

United States

     538         4.39         2,792         2.55         4,089         2.02         633         4.24         8,053   

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

     326         4.91         7         0.38         28         0.75         —           —           362   

States and political subdivisions debt securities

     67         4.93         966         2.20         1,277         2.02         26         4.00         2,336   

Other debt securities

     145         2.94         1,819         2.75         2,784         2.04         607         4.25         5,355   

Other countries

     3,613         7.19         9,131         4.48         4,613         6.17         2,825         5.91         20,181   

Securities of foreign governments (2)

     1,107         4.33         5,914         4.91         2,348         7.20         1,454         6.43         10,824   

Other debt securities of other countries

     2,506         8.30         3,216         3.70         2,265         5.12         1,372         5.29         9,358   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total International

     5,530         5.91         17,328         4.04         10,193         4.07         7,345         4.64         40,397   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL AVAILABLE-FOR-SALE

     10,025         4.75         32,314         3.84         23,829         4.19         16,063         4.79         82,231   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

HELD-TO-MATURITY PORTFOLIO

                    

Domestic

                    

Spanish government

     —           —           —           —           —           —           —           —           —     

Other debt securities

     —           —           —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Domestic

     —           —           —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total International

     —           —           —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL HELD-TO-MATURITY

     —           —           —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL DEBT SECURITIES

     10,025         4.75         32,314         3.84         23,829         4.19         16,063         4.79         82,231   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Rates have been presented on a non-taxable equivalent basis.
(2) Securities of other foreign Governments mainly include investments made by our subsidiaries in securities issued by the Governments of the countries where they operate.

 

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Table of Contents

Loans and Advances to Credit Institutions

As of June 30, 2014, our total loans and advances to credit institutions amounted to €26,688 million, or 4.5% of total assets. Net of our valuation adjustments, loans and advances to credit institutions amounted to €26,762 million as of June 30, 2014, or 4.5% of our total assets.

Loans and Advances to Customers

As of June 30, 2014, our total loans and advances amounted to €339,916 million, or 56.7% of total assets. Net of our valuation adjustments, loans and advances amounted to €327,239 million as of June 30, 2014, or 54.6% of our total assets. As of June 30, 2014 our loans and advances in Spain amounted to €186,172 million. Our foreign loans amounted to €153,744 million as of June 30, 2014. For a discussion of certain mandatory ratios relating to our loan portfolio, see “Item 4. Information on the Company—Business Overview—Supervision and Regulation—Liquidity Ratio” and “Item 4. Information on the Company —Business Overview— Supervision and Regulation—Investment Ratio” in our annual report on Form 20-F for the year ended December 31, 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,
2014
    As of December 31,
2013
    As of June 30,
2013
 
     (In Millions of Euros)  

Domestic

     186,172        187,400        201,687   

Foreign

      

Western Europe

     17,655        17,519        19,269   

Latin America

     91,764        92,223        89,121   

United States

     40,952        36,047        37,319   

Other

     3,373        3,569        3,300   

Total foreign

     153,744        149,358        149,009   
  

 

 

   

 

 

   

 

 

 

Total loans and advances

     339,916        336,758        350,696   

Valuation adjustments

     (12,677     (13,151     (12,310
  

 

 

   

 

 

   

 

 

 

Total net lending

     327,239        323,607        338,386   
  

 

 

   

 

 

   

 

 

 

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,
2014
    As of December 31,
2013
    As of June 30,
2013
 
     (In Millions of Euros)  

Domestic

      

Government

     23,658        22,166        26,069   

Agriculture

     1,247        1,275        1,329   

Industrial

     12,762        13,774        13,654   

Real estate and construction

     23,648        25,323        27,809   

Commercial and financial

     19,235        15,534        20,422   

Loans to individuals (1)

     89,967        90,364        94,703   

Other

     15,655        18,964        17,700   
  

 

 

   

 

 

   

 

 

 

Total domestic

     186,172        187,400        201,687   
  

 

 

   

 

 

   

 

 

 

Foreign

      

Government

     10,744        10,234        10,270   

Agriculture

     3,513        3,707        3,117   

Industrial

     14,522        14,905        13,898   

Real estate and construction

     15,993        15,163        16,503   

Commercial and financial

     35,894        31,635        35,610   

Loans to individuals

     56,801        59,527        57,024   

Other

     16,276        14,187        12,587   
  

 

 

   

 

 

   

 

 

 

Total foreign

     153,744        149,358        149,009   
  

 

 

   

 

 

   

 

 

 

Total loans and advances

     339,916        336,758        350,696   
  

 

 

   

 

 

   

 

 

 

Valuation adjustments

     (12,677     (13,151     (12,310
  

 

 

   

 

 

   

 

 

 

Total net lending

     327,239        323,607        338,386   
  

 

 

   

 

 

   

 

 

 

 

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

 

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Table of Contents

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

 

     As of June 30,
2014
     As of December 31,
2013
     As of June 30,
2013
 
     (In Millions of Euros)  

In euros

     189,196         190,090         206,887   

In other currencies

     138,043         133,517         131,499   
  

 

 

    

 

 

    

 

 

 

Total net lending

     327,239         323,607         338,386   
  

 

 

    

 

 

    

 

 

 

As of June 30, 2014, loans by BBVA and its subsidiaries to associates and jointly controlled companies amounted to €720 million, compared to €792 million as of December 31, 2013. Loans outstanding to the Spanish government and its agencies amounted to €23,658 million, or 7.0% of our total loans and advances as of June 30, 2014, compared to €22,166 million, or 6.6% of our total loans and advances as of December 31, 2013. 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, 2014, excluding government-related loans, amounted to €17,434 million or approximately 5.1% of our total outstanding loans and advances. As of June 30, 2014 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.

 

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Table of Contents

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, 2014. 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

     12,511         6,334         4,813         23,658   

Agriculture

     617         411         219         1,247   

Industrial

     10,179         1,829         755         12,762   

Real estate and construction

     12,170         6,487         4,990         23,648   

Commercial and financial

     13,398         2,033         3,804         19,235   

Loans to individuals

     15,794         16,464         57,709         89,967   

Other

     9,900         3,555         2,201         15,655   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total domestic

     74,569         37,113         74,491         186,172   
  

 

 

    

 

 

    

 

 

    

 

 

 

Foreign

           

Government

     1,222         1,373         8,149         10,744   

Agriculture

     1,848         1,166         499         3,513   

Industrial

     7,906         4,011         2,605         14,522   

Real estate and construction

     4,849         6,771         4,373         15,993   

Commercial and financial

     15,975         17,187         2,732         35,894   

Loans to individuals

     7,219         19,923         29,660         56,802   

Other

     7,596         5,406         3,274         16,276   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total foreign

     46,615         55,837         51,292         153,744   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans and advances

     121,183         92,950         125,783         339,916   
  

 

 

    

 

 

    

 

 

    

 

 

 

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, 2014.

 

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

Fixed rate

     10,496         48,348         58,844   

Variable rate

     101,108         58,781         159,889   
  

 

 

    

 

 

    

 

 

 

Total loans and advances

     111,604         107,129         218,733   
  

 

 

    

 

 

    

 

 

 

Impairment losses on loans and advances

For a discussion of loan loss reserves, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies—Impairment losses on financial assets” and Note 2.2.1 to the Interim Consolidated Financial Statements.

 

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Table of Contents

The following table provides information, by domicile of customer, regarding our loan loss reserve and movements of loan charge-offs and recoveries for periods indicated.

 

     As of and for the
Six Months Ended
June 30,
    As of and for the
Year Ended
December 31,
    As of and for the
Six Months Ended
June 30,
 
     2014     2013     2013  
     (In Millions of Euros, except Percentages)  

Loan loss reserve at beginning of period:

      

Domestic

     10,514        9,649        9,649   

Foreign

     4,481        4,510        4,510   
  

 

 

   

 

 

   

 

 

 

Total loan loss reserve at beginning of period

     14,995        14,159        14,159   

Loans charged off:

      

Total domestic (1)

     (1,201     (1,965     (1,139

Total foreign (2)

     (915     (1,709     (815
  

 

 

   

 

 

   

 

 

 

Total Loans charged off:

     (2,117     (3,673     (1,954

Provision for possible loan losses:

      

Domestic

     1,118        3,417        1,549   

Foreign

     1,178        2,522        1,225   
  

 

 

   

 

 

   

 

 

 

Total Provision for possible loan losses

     2,295        5,939        2,774   

Acquisition and disposition of subsidiaries

     —          (30     —     

Effect of foreign currency translation

     (95     (557     (199

Other

     (353     (842     (387
  

 

 

   

 

 

   

 

 

 

Loan loss reserve at end of period:

      

Domestic

     10,232        10,514        9,841   

Foreign

     4,494        4,481        4,552   
  

 

 

   

 

 

   

 

 

 

Total Loan loss reserve at end of period

     14,726        14,995        14,393   
  

 

 

   

 

 

   

 

 

 

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

     4.10     4.27     3.90

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

     0.59     1.05     0.53

 

(1) Loans charged off were mainly related to the real estate sector.
(2) Loans charged off in the six months ended June 30, 2014 include €895 million related to real estate loans and loans to individuals and others, €19 million related to commercial and financial loans and €1 million related to loans to governmental and non-governmental agencies. Loans charged off in the year ended December 31, 2013 include €1,592 million related to real estate loans and loans to individuals and others, €114 million related to commercial and financial loans and €3 million related to loans to governmental and non-governmental agencies. Loans charged off in the six months ended 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.

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.

 

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Table of Contents

The loans charged off amounted to €2,117 million during the six months ended June 30, 2014 compared to €1,954 million during the six months ended June 30, 2013.

Our loan loss reserves as a percentage of total loans and advances decreased to 4.0% as of June 30, 2014 from 4.3% as of December 31, 2013.

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 the loans.

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 unpaid principal. The approximate amount of interest income on our impaired loans which was included in profit attributable to parent company for the six months ended June 30, 2014 and 2013 was €115.8 million and €139.7 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,  
     2014     2013  
     (In Millions of Euros)  

Impaired loans

    

Domestic

     19,769        20,985   

Public sector

     164        158   

Other resident sector

     19,605        20,826   

Foreign

     4,417        4,493   

Public sector

     11        11   

Other non-resident sector

     4,406        4,482   

Total impaired loans

     24,186        25,478   

Total loan loss reserve

     (14,726     (14,995

Impaired loans net of reserves

     9,460        10,483   

Our total impaired loans amounted to €24,186 million as of June 30, 2014, a 5.1% decrease compared to €25,478 million as of December 31, 2013. This decrease is mainly attributable to the decrease in impaired loans in the “Other resident sector” as a result of the positive performance of additions to NPA which have continued to decline since the end of 2013 and higher recoveries in Spain, where conditions have improved compared with the period ended June 30, 2013.

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 unimpaired assets but which present an inherent loss. As of June 30, 2014, the loss reserve for impaired assets amounted to €12,319 million, a 2.2% decrease compared to €12,599 million as of December 31, 2013. This decrease in our loss reserve for impaired assets is mainly due to a better performance of loans and advances to customers in the real estate sector in Spain. As of June 30, 2014, the loss reserve for unimpaired assets amounted to €2,407 million, a 0.5% increase compared to €2,396 million as of December 31, 2013.

 

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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, 2014.

 

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

Domestic:

       

Government

     164         (44     0.69

Credit institutions

     —           —          —     

Other sectors

     19,605         (9,960     12.06

Agriculture

     137         (76     10.99

Industrial

     1,772         (915     13.88

Real estate and construction

     9,588         (5,772     40.55

Commercial and other financial

     1,126         (693     5.85

Loans to individuals

     5,602         (1,659     6.23

Other

     1,379         (846     8.81
  

 

 

    

 

 

   

Total Domestic

     19,769         (10,004     10.34
  

 

 

    

 

 

   

Foreign:

       

Government

     11         (1     0.10

Credit institutions

     27         (20     0.13

Other sectors

     4,379         (2,294     3.06

Agriculture

     142         (110     4.04

Industrial

     264         (121     1.82

Real estate and construction

     1,608         (712     10.05

Commercial and other financial

     290         (210     0.81

Loans to individuals

     1,347         (585     2.37

Other

     728         (555     4.47
  

 

 

    

 

 

   

Total Foreign

     4,417         (2,315     2.52
  

 

 

    

 

 

   

General reserve

     —           (2,406  
  

 

 

    

 

 

   

Total impaired loans

     24,186         (14,726     6.74
  

 

 

    

 

 

   

Troubled Debt Restructurings

As of June 30, 2014, “troubled debt restructurings”, as described in Note 7 to our Interim Consolidated Financial Statements, totaling €10,951 million were not considered impaired loans. For additional information on our restructured or renegotiated loans, see Note 7 to our Interim Consolidated Financial Statements.

Potential Problem Loans

The identification of “Potential problem loans” is based on the analysis of historical non-performing asset ratios trends, categorized by products/clients and geographical locations. This analysis is focused on the identification of portfolios with non-performing asset ratios higher than our average non-performing asset ratios. 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 non-performing asset ratio in our domestic real estate and construction portfolio was 40.6% as of June 30, 2014 (compared to 41.0% as of December 31, 2013), substantially higher than the average non-performing asset ratio for all of our domestic activities (10.3%) and the average non-performing asset ratio for all of our consolidated activities (6.4%) as of such date. Within such portfolio, construction loans and property development loans (which exclude mainly infrastructure and civil construction) had a non-performing asset ratio of 43.7% as of such date (compared to 43.9% as of December 31, 2013). Given such non-performing asset ratio, 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

 

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Consolidated Financial Statements). The table below sets forth additional information on our domestic real estate and construction portfolio “Potential problem loans” as of June 30, 2014:

 

     Book Value      Loan Loss Reserve     

% of Loans in

Each Category to

Total Loans to

Customers

 
     (In Millions of Euros, Except Percentages)  

Domestic(1)

        

Impaired loans

     7,989         4,349         2.2

Special monitoring loans

     1,279         457         0.4

Of which:

        

Troubled debt restructurings

     880         329         0.2

 

(1) Potential problem loans outside of Spain as of June 30, 2014 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). As of June 30, 2014 and December 31, 2013, no borrower’s country exceeded 1% of our total assets. 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, 2014     As of December 31, 2013  
     Amount      % of Total
Assets
    Amount      % of Total
Assets
 
     (In Millions of Euros, Except %)     (In Millions of Euros, Except %)  

United Kingdom

     5,301         0.9     5,727         1.0

Mexico

     1,308         0.2     1,432         0.2

Other OECD

     6,028         1.0     6,242         1.1
  

 

 

    

 

 

   

 

 

    

 

 

 

Total OECD

     12,637         2.1     13,401         2.3

Central and South America

     2,541         0.4     3,461         0.6

Other

     4,871         0.8     4,903         0.8
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

     20,049         3.3     21,765         3.7
  

 

 

    

 

 

   

 

 

    

 

 

 

The following table sets forth the amounts of our cross-border outstandings as of June 30, 2014 and December 31, 2013 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, 2014

           

Mexico

     114         10         1,185         1,308   

United Kingdom

     —           3,028         2,273         5,301   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     114         3,037         3,457         6,609   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2013

           

Mexico

     22         8         1,401         1,432   

United Kingdom

     —           3,703         2,024         5,727   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     22         3,711         3,426         7,159   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

The following table shows the minimum required reserves with respect to each category of country for BBVA’s level of coverage as of June 30, 2014.

 

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 €205 million and €271 million as of June 30, 2014 and December 31, 2013, respectively. These figures do not reflect loan loss reserves of 16.6% and 14.3% respectively, against the relevant amounts outstanding at such dates. Deposits with or loans to borrowers in all such countries as of June 30, 2014 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, 2014 and December 31, 2013 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, 2014 and December 31, 2013 amounted to $127 million and $125 million, respectively (approximately €93 million and €91 million, respectively, based on a euro/dollar exchange rate on June 30, 2014 of $1.00 = €0.73 and on December 31, 2013 of $1.00 = €0.73).

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.

 

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     As of June 30, 2014  
     Customer
Deposits
     Bank of Spain
and Other
Central Banks
     Other Credit
Institutions
     Total  
     (In Millions of Euros)  

Total Domestic

     143,593         17,716         10,197         171,506   

Foreign

           

Western Europe

     23,924         102         29,239         53,265   

Mexico

     46,654         2,282         6,471         55,406   

South America

     51,399         89         3,075         54,563   

United States

     42,634         34         5,911         48,579   

Other

     1,359         732         1,443         3,534   

Total Foreign

     165,970         3,239         46,139         215,348   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     309,562         20,954         56,336         386,852   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     As of December 31, 2013  
     Customer
Deposits
     Bank of Spain
and Other
Central Banks
     Other Credit
Institutions
     Total  
     (In Millions of Euros)  

Total Domestic

     142,829         25,103         9,149         177,082   

Foreign

           

Western Europe

     19,244         36         26,826         46,106   

Mexico

     40,913         5,238         5,831         51,982   

South America

     56,218         127         3,750         60,094   

United States

     39,128         —           5,716         44,844   

Other

     1,272         190         982         2,444   

Total Foreign

     156,775         5,591         43,105         205,471   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     299,604         30,694         52,254         382,552   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

As of June 30, 2014, the maturity of our time deposits (excluding interbank deposits) in denominations of $100,000 (approximately €73,046 considering the noon buying rate as of June 30, 2014) or greater was as follows:

 

     As of June 30, 2014  
     Domestic      Foreign      Total  
     (In Millions of Euros)  

3 months or under

     10,055         17,290         27,344   

Over 3 to 6 months

     8,010         4,401         12,412   

Over 6 to 12 months

     11,444         5,817         17,261   

Over 12 months

     17,579         10,638         28,217   
  

 

 

    

 

 

    

 

 

 

Total

     47,088         38,146         85,234   
  

 

 

    

 

 

    

 

 

 

Time deposits from Spanish and foreign financial institutions amounted to €28,832 million as of June 30, 2014, substantially all of which were in excess of $100,000 (approximately €73,046 considering the noon buying rate as of June 30, 2014).

 

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Large denomination deposits may be a less stable source of funds than demand and savings deposits because they are more sensitive to variations in interest rates. For a breakdown by currency of customer deposits as of June 30, 2014 and December 31, 2013, 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, 2014, December 31, 2013, and June 30, 2013.

 

     As of and for the
Six Months Ended
June 30, 2014
    As of and for the
Year Ended
December 31, 2013
    As of and for the
Six Months Ended
June 30, 2013
 
     Amount      Average
rate
    Amount      Average
rate
    Amount      Average
rate
 
     (in millons of euro, except percentages)  

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

               

As of end of period

     44,696         0.9     43,602         1.0     43,754         1.4

Average during period

     43,143         1.0     42,958         1.2     45,063         1.3

Maximum quarter-end balance

     47,238         —          51,663         —          51,663         —     

Bank promissory notes:

               

As of end of period

     581         1.0     1,252         1.3     5,819         3.2

Average during period

     938         1.1     5,236         3.0     7,557         3.3

Maximum quarter-end balance

     1,107         —          7,304         —          7,304         —     

Bonds and Subordinated debt :

               

As of end of period

     14,267         3.6     15,183         6.3     18,326         2.7

Average during period

     14,561         3.5     16,101         2.9     16,281         3.1

Maximum quarter-end balance

     15,487         —          18,328         —          18,279         —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total short-term borrowings as of end of period

     59,545         1.5 %      60,036         2.3 %      67,898         1.9 % 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Return on Equity

The following table sets out our return on equity ratios:

 

     As of June 30,
2014
     As of December 31,
2013
     As of June 30,
2013
 
     (In Percentages)  

Return on equity (1)

     5.8         5.0         13.2   

Return on assets(2)

     0.5         0.5         1.1   

Equity to assets ratio(3)

     7.7         7.8         7.6   

 

(1) Represents profit attributed to parent company for the period as a percentage of average stockholder’s funds for the period. For June 30, 2014 and June 30, 2013 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, 2014 and June 30, 2013 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.

 

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OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Overview

The trends observed at the end of 2013 continued into the first half of 2014, with a global economy where advanced economies increased their contribution to global growth, while emerging economies experienced a slowdown. Global financial markets have remained relatively calm. Increased volatility has been linked more to geopolitical risk events than to the monetary policy decisions taken by central banks, which had already been largely discounted by the markets. This can be seen in the fact that capital is flowing again into bonds and equity in emerging economies, and continuing into financial assets in the peripheral economies of the Eurozone. Overall, global growth in the first half of 2014 is estimated at just under the figure for 2013, mainly due to the temporary adjustment in the first quarter of 2014 in the United States. Europe maintained its growth rates during the first months of the year but it ceased to grow in the second quarter, while emerging economies have slowed to some extent, though in both cases the conditions for accessing finance have eased.

In the United States, the adverse weather conditions led to a fall in GDP in the first quarter of 2014. However, this decline may be temporary and the most recent indicators suggest that GDP has grown again in the second quarter. There has been a significant rise in employment, as well as a fall in the unemployment rate. The Federal Reserve has maintained its tapering of the monetary expansion program, while long-term interest rates have moderated over the first six months of the year, with inflationary expectations anchored at low levels and growth without upward surprises.

The improved external environment, the adjustments made in the peripheral Eurozone countries, support from the European Central Bank (ECB) and the strengthening of the institutional framework of the monetary union as a whole, have together improved demand and financing conditions for the European economy and supported its return to growth, which has continued in the first half of 2014. But although the situation has improved, economic activity remains fragile, as it depends on the continuity of the reforms, on adjustments that still have to be made, and on the international environment remaining favorable.

The weakness of the recovery, together with low inflation and the risk of deflation, has led the ECB to lower interest rates to all-time lows in financing operations, and brought interest rates into negative territory for deposit facilities. It has also announced unlimited long-term funding, but conditional on the provision of credit to the private sector. These measures have been taken against the background of a review of the soundness of the European banking system, both in terms of capital quality and resilience to stress scenarios. The ECB has also shown itself open to the introduction of additional quantitative easing measures if the above actions fail in their goal of stimulating the economy and depreciating the euro. Pending a determination of their impact in terms of economic activity, volatility in the financial markets has remained low, while capital flows into the zone, in particular the periphery, have continued, and market interest rates have fallen very significantly. The improvement has continued in the countries that have already abandoned the bailout programs.

Meanwhile, the recovery process continues in the Spanish economy. It has grown three quarters in a row and the most recent indicators suggest that growth in the second quarter of 2014 will be slightly higher than in the first. Despite the low rate of growth, the Spanish economy is already creating jobs, but this has not reduced the unemployment rate of 25% to any significant extent. The public accounts are benefiting from the falling cost of debt financing, although the debt itself continues to rise. Lastly, the bank bailout program under Law 9/2012 has finally concluded.

In the emerging economies as a whole the slowdown in GDP growth that began at the end of 2013 continued into the initial months of 2014, although the outlook should be brighter if the improvement in the conditions for accessing finance continues. The Chinese economy is slowing down, in line with forecasts, and it is providing support for the other emerging economies. In Latin America, demand is slowing, particularly domestic demand. The financial markets, however, have improved, following the episodes of volatility in 2013 and the start of 2014. Capital flows and asset prices are recovering.

 

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

Trends in Exchange Rates

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

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 and the Turkish lira against the euro, expressed in local currency per €1.00 as of and for the six months ended June 30, 2014 and 2013 according to the European Central Bank (“ECB”).

 

     Average Exchange Rates      Period-End Exchange Rates  
     For the Six
Months Ended
June 30, 2014
     For the Six
Months Ended
June 30, 2013
     As of
June 30,
2014
     As of
December 31,
2013
 

Mexican peso

     17.9756         16.4929         17.7123         18.0731   

U.S. dollar

     1.3705         1.3131         1.3658         1.3791   

Argentine peso

     10.7219         6.7271         11.1067         8.9890   

Chilean peso

     757.5758         628.5355         751.8797         722.5434   

Colombian peso

     2,688.1720         2,398.0815         2,570.6941         2,659.5745   

Peruvian new sol

     3.8371         3.4372         3.8133         3.8535   

Venezuelan bolívar fuerte

     14.6340         7.6276         14.4774         8.6775   

Turkish lira

     2.9677         2.3804         2.8969         2.9605   

During the six months ended June 30, 2014, all of the above currencies depreciated against the euro in average terms, resulting in a negative effect on the period-on-period comparison of the Group’s income statement.

At period-end exchange rates, there was an appreciation against the Euro of the Mexican peso, the U.S. dollar, the Colombian peso and the Peruvian new sol with respect to December 31, 2013. The effect of changes in these exchange rates on the half-year comparison of the consolidated balance sheet was positive. On the other hand there was depreciation against the euro of the Venezuelan bolivar fuerte, the Argentine peso and the Chilean peso, resulting in a negative impact on the half-year comparison of the consolidated balance sheet. Overall, the effect of changes in the exchange rates on half-year comparison of the Group’s income statement and balance sheet was negative.

 

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BBVA Group Results of Operations for the Six Months Ended June 30, 2014 Compared to the Six Months Ended June 30, 2013

The changes in the Group’s consolidated income statements for the six months ended June 30, 2014 and June 30, 2013 were as follows:

 

     For the Six
Months Ended
June 30,
       
     2014     2013     Change  
     (In Millions of Euros)     (In %)  

Interest and similar income

     11,000        11,831        (7.0

Interest expense and similar charges

     (4,276     (4,932     (13.3
  

 

 

   

 

 

   

Net interest income

     6,724        6,899        (2.5
  

 

 

   

 

 

   

Dividend income

     370        65        n.m. (1) 

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

     155        407        (61.9

Fee and commission income

     2,617        2,692        (2.8

Fee and commission expenses

     (625     (611     2.3   

Net gains (losses) on financial assets and liabilities

     978        794        23.2   

Net exchange differences

     173        515        (66.4

Other operating income

     2,242        2,554        (12.2

Other operating expenses

     (2,552     (2,711     (5.9

Administration costs

     (4,542     (4,833     (6.0

Personnel expenses

     (2,638     (2,808     (6.1

General and administrative expenses

     (1,905     (2,025     (5.9

Depreciation and amortization

     (548     (535     2.4   

Provisions (net)

     (433     (273     58.6   

Impairment losses on financial assets (net)

     (2,126     (2,635     (19.3

Impairment losses on other assets (net)

     (98     (214     (54.2

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

     14        693        (98.0

Negative goodwill

     —          —          —     

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

     (281     (309     (9.1
  

 

 

   

 

 

   

Operating profit before tax

     2,067        2,498        (17.3
  

 

 

   

 

 

   

Income tax

     (524     (601     (12.8
  

 

 

   

 

 

   

Profit from continuing operations

     1,544        1,897        (18.6
  

 

 

   

 

 

   

Profit from discontinued operations (net)

     —          1,393        (100.0
  

 

 

   

 

 

   

Profit

     1,544        3,290        (53.1
  

 

 

   

 

 

   

Profit attributable to parent company

     1,328        2,882        (53.9

Profit attributable to non-controlling interests

     215        408        (47.3
  

 

 

   

 

 

   

 

(1) Not meaningful.

The changes in our consolidated income statements for the six months ended June 30, 2014 and June 30, 2013 were as follows:

Net interest income

The following table summarizes the principal components of net interest income for the six months ended June 30, 2014 and June 30, 2013.

 

     For the Six
Months Ended
June 30,
       
     2014     2013     Change  
     (In Millions of Euros)     (In %)  

Interest and similar income

     11,000        11,831        (7.0

Interest and similar expenses

     (4,276     (4,932     (13.3
  

 

 

   

 

 

   

Net interest income

     6,724        6,899        (2.5
  

 

 

   

 

 

   

 

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Net interest income for the six months ended June 30, 2014 amounted to €6,724 million, a 2.5% decrease compared to the €6,899 million recorded for the six months ended June 30, 2013, mainly due to the impact of the average exchange rate depreciation against the euro of the Venezuelan bolivar fuerte and the Argentine peso. At constant exchange rates, net interest income would have increased by 10.3% due to the strong activity in emerging markets.

Dividend income

For the six months ended June 30, 2014, dividend income was €370 million compared with the €65 million recorded for the six months ended June 30, 2013, as a result of the collection of dividend payments by the Telefónica group (which did not pay dividends during the six months ended June 30, 2013) and CNCB which was accounted for under the equity method until September 30, 2013.

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 for the six months ended June 30, 2014 was €155 million, a 61.9% decrease compared to the €407 million recorded for the six months ended June 30, 2013, mainly due to the reclassification of our interest in CNCB to “Available-for-sale financial assets” on October 2013 (see Note 12 to the Interim Consolidated Financial Statements), as a result of which the gains collected from CNCB ceased to be accounted for under this line item.

Fee and commission income

The breakdown of fee and commission income for the six months ended June 30, 2014 and June 30, 2013 is as follows:

 

     For the Six Months
Ended June 30,
        
     2014      2013      Change  
     (In Millions of Euros)      (In %)  

Commitment fees

     94         93         1.1   

Contingent risks

     148         156         (5.1

Letters of credit

     22         23         (4.3

Bank and other guarantees

     126         133         (5.3

Arising from exchange of foreign currencies and banknotes

     8         11         (27.3

Collection and payment services income

     1,427         1,494         (4.5

Bills receivables

     31         32         (3.1

Current accounts

     166         179         (7.3

Credit and debit cards

     921         937         (1.7

Checks

     101         122         (17.2

Transfers and others payment orders

     155         163         (4.9

Rest

     53         61         (13.1

Securities services income

     581         576         0.9   

Securities underwriting

     41         46         (10.9

Securities dealing

     100         103         (2.9

Custody securities

     151         166         (9.0

Investment and pension funds

     226         200         13.0   

Rest assets management

     63         61         3.3   

Counseling on and management of one-off transactions

     7         7         —     

Financial and similar counseling services

     36         19         89.5   

Factoring transactions

     18         19         (5.3

Non-banking financial products sales

     54         60         (10.0

Other fees and commissions

     244         257         (5.1
  

 

 

    

 

 

    

Fee and commission income

     2,617         2,692         (2.8
  

 

 

    

 

 

    

 

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Fee and commission income decreased by 2.8% to €2,617 million for the six months ended June 30, 2014 from €2,692 million for the six months ended June 30, 2013. While fee and commission income was negatively affected by exchange rates fluctuations, such effect was significantly offset by the increased fees and commissions in certain emerging countries.

Fee and commission expenses

The breakdown of fee and commission expenses for the six months ended June 30, 2014 and June 30, 2013 is as follows:

 

     For the Six Months
Ended June 30,
        
     2014      2013      Change  
     (In Millions of Euros)      (In %)  

Brokerage fees on lending and deposit transactions

     —           —           —     

Fees and commissions assigned to third parties

     470         440         6.8   

Credit and debit cards

     398         370         7.6   

Transfers and others payment orders

     31         24         29.2   

Securities dealing

     2         3         (33.3

Rest

     39         43         (9.3

Other fees and commissions

     155         171         (9.4
  

 

 

    

 

 

    

Fee and commission expenses

     625         611         2.3   
  

 

 

    

 

 

    

Fee and commission expenses increased by 2.3% to €625 million for the six months ended June 30, 2014 from €611 million for the six months ended June 30, 2013, mainly as a result of the impact of emerging countries where commission expenses have grown due to increased activity.

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

Net gains (losses) on financial assets and liabilities increased by 23.2% to a gain of €978 million for the six months ended June 30, 2014 from a €794 million gain for the six months ended June 30, 2013, mainly as a result of the gains on the sale of portfolios, including sovereign bonds, available for sale managed by the ALCO, which were positively affected by the improved market perception on sovereign debt as a result of the lower credit risk and the lower sovereign risk premiums paid by more recent issuances.

The table below provides a breakdown of net gains (losses) on financial assets and liabilities for the six months ended June 30, 2014 and June 30, 2013:

 

     For the Six Months
Ended June 30,
        
     2014     2013      Change  
     (In Millions of Euros)      (In %)  

Financial assets held for trading

     496        98         n.m. (1) 

Other financial assets designated at fair value through profit or loss

     (14     32         n.m. (1) 

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

     496        664         (25.3

Available-for-sale financial assets

     700        533         31.3   

Loans and receivables

     8        118         (93.2

Other

     (211     13         n.m. (1) 
  

 

 

   

 

 

    

Net gains (losses) on financial assets and liabilities

     978        794         23.2   
  

 

 

   

 

 

    

 

(1) Not meaningful.

Net exchange differences decreased to €173 million for the six months ended June 30, 2014 from €515 million for the six months ended June 30, 2013, due primarily to the appreciation of the euro.

 

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Table of Contents

Other operating income and expenses

Other operating income amounted to €2,242 million for the six months ended June 30, 2014 a 12.2% decrease compared to €2,554 million for the six months ended June 30, 2013, mainly as a result of the effect of changes in exchange rates.

Other operating expenses for the six months ended June 30, 2014, amounted to €2,552 million, a 5.9% decrease compared to the €2,711 million recorded for the six months ended June 30, 2013 mainly as a result of the effect of changes in exchange rates.

Administration costs

Administration costs comprise personnel expenses and general and administrative expenses and for the six months ended June 30, 2014 amounted to €4,542 million, a 6.0% decrease compared with the €4,833 million recorded for the six months ended June 30, 2013 mainly due to the above mentioned effect of the exchange rates. Excluding this effect, operating expenses would have increased due to the implementation of expansion plans and higher activity and inflation in emerging economies.

The table below provides a breakdown of personnel expenses for the six months ended June 30, 2014 and June 30, 2013.

 

     For the Six Months
Ended June 30,
        
     2014      2013      Change  
     (In Millions of Euros)      (In %)  

Wages and salaries

     1,990         2,120         (6.1

Social security costs

     342         355         (3.7

Transfers to internal pension provisions

     30         37         (18.9

Contributions to external pension funds

     47         49         (4.1

Other personnel expenses

     229         247         (7.3
  

 

 

    

 

 

    

Personnel expenses

     2,638         2,808         (6.1
  

 

 

    

 

 

    

Wages and salaries expenses decreased 6.1% from €2,120 million for the six months ended June 30, 2013 to €1,990 million for the six months ended June 30, 2014.

The table below provides a breakdown of general and administrative expenses for the six months ended June 30, 2014 and June 30, 2013:

 

     For the Six Months
Ended June 30,
        
     2014      2013      Change  
     (In Millions of Euros)      (In %)  

Technology and systems

     275         401         (31.4

Communications

     134         145         (7.6

Advertising

     91         196         (53.6

Property, fixtures and materials

     435         449         (3.1

Of which:

        

Rent expenses

     226         239         (5.4

Taxes other than income tax

     190         211         (10.0

Other expenses

     780         623         25.2   
  

 

 

    

 

 

    

General and administrative expenses

     1,905         2,025         (5.9
  

 

 

    

 

 

    

Technology and systems expenses decreased from €401 million for the six months ended June 30, 2013 to €275 million for the six months ended June 30, 2014 mainly due to lower costs related to software in Spain. Advertising decreased from €196 million for the six months ended June 30, 2013 to €91 million for the six months ended June 30, 2014 mainly as a result of the decrease in advertising expenses in Spain, Mexico and the United States.

 

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Table of Contents

Depreciation and amortization

Depreciation and amortization for the six months ended June 30, 2014 was €548 million, a 2.4% increase compared with the €535 million recorded for the six months ended June 30, 2013 mainly due to the amortization of software and tangible assets for own use.

Provisions (net)

Provisions (net) for the six months ended June 30, 2014 was a loss of €433 million, a 58.6% increase compared to the loss of €273 million in the six months ended June 30, 2013, mainly due to the costs related to the various digitalization and transformation processes undertaken by the Group.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) for the six months ended June 30, 2014 was €2,126 million, a 19.3% decrease compared to the €2,635 million registered in the six months ended June 30, 2013, due mainly to decreased impaired assets as a result of lower additions to non-performing assets and higher recoveries in Spain.

Impairment losses on other assets (net)

Impairment losses on other assets (net) for the six months ended June 30, 2014 amounted to €98 million, a 54.2% decrease compared to the €214 million recorded for the six months ended June 30, 2013, when impairments losses on real estate inventories were higher as a result of the deterioration of the value of these assets.

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, 2014 amounted to a gain of €14 million, compared to a gain of €693 million recognized for the six months ended June 30, 2013, when we recorded the capital gain 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).

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, 2014, amounted to a loss of €281 million, a 9.1% decrease compared to a loss of €309 million for the six months ended June 30, 2013, mainly as a result of lower 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, 2014 was €2,067 million, a 17.3% decrease from the €2,498 million recorded for the six months ended June 30, 2013.

Income tax

Income tax for the six months ended June 30, 2014 was an expense of €524 million, a 12.8% decrease compared with the €601 million expense recorded in the six months ended June 30, 2013, due mainly to the lower operating profit before tax.

 

36


Table of Contents

Profit from continuing operations

As a result of the foregoing, profit from continuing operations for the six months ended June 30, 2014 was €1,544 million, an 18.6% decrease from the €1,897 million recorded for the six months ended June 30, 2013.

Profit from discontinued operations (net)

While there was no profit from discontinued operations during the first half of 2014, during the first half of 2013 profit from discontinued operations (net) totaled €1,393 million as a result of the income from the pension business in Latin America (including capital gains from the sale of Afore Bancomer in Mexico and the pension fund managers in Colombia and Peru), which was sold in 2013.

Profit

As a result of the foregoing, profit for the six months ended June 30, 2014 was €1,544 million, a 53.1% decrease from the €3,290 million recorded for the six months ended June 30, 2013.

Profit attributable to parent company

Profit attributable to parent company for the six months ended June 30, 2014 was €1,328 million, a 53.9% decrease from the €2,882 million recorded for the six months ended June 30, 2013.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests for the six months ended June 30, 2014 was €215 million, a 47.3% decrease from the €408 million registered for the six months ended June 30, 2013, due mainly to the 53.1% decrease in profit, and in line with the 53.9% decrease in profit attributable to parent company.

Results of Operations by Operating Segment

The information contained in this section is presented under management criteria.

The tables set forth below reconcile the income statement of our operating segments presented in this section to the consolidated income statement of the Group. The “Adjustments” column reflects the differences between the Group income statement and the income statement calculated in accordance with management operating segment reporting criteria, which are the following:

 

    The treatment of Garanti: Under management criteria, 25.01% of the assets liabilities and income statement of Garanti are included in every line of the balance sheet and income statement, respectively, while for purposes of the Group financial statements the participation in Garanti is accounted under “Share of profit or loss of entities accounted for using the equity method”.

 

    The creation of a line in the income statement called “Profit from corporate operations” which is in place of “Profit from discontinued operations” that includes the following with respect to the six months ended June 30, 2013:

 

  The gains from the transaction entered into by BBVA Seguros and 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 in the Banking Activity in Spain operating segment.

 

  The earnings from the sale of the pension businesses in Mexico, Colombia and Peru and also the earnings of these businesses until their sale, the results of the pension business in Chile until June 30, 2013 (this business was sold after that date), the profit or loss of the stake in CNCB using the equity method until June 30, 2013 (excluding dividends) and the tax impact of corporate operations in the Corporate Center.

 

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Table of Contents
     For the Six Months Ended June 30, 2014  
     Banking
Activity
in Spain
    Real
Estate
Activity in
Spain
    Eurasia     Mexico     United
States
    South
America
    Corporate
center
    Total     Adjustments     Group
Income
 
     (In Millions of Euros)  

Net interest income

     1,867        (18     408        2,354        693        2,061        (326     7,038        (314     6,724   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net fees and commissions

     734        —          191        560        268        391        (58     2,086        (94     1,992   

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

     642        15        121        108        74        246        (29     1,177        (26     1,151   

Other operating income and expenses net (*)

     140        (83     184        112        2        (335     47        67        148        215   

Administration costs

     (1,366     (67     (329     (1,067     (626     (969     (286     (4,710     168        (4,542

Depreciation and amortization

     (52     (12     (22     (88     (87     (73     (231     (565     17        (548

Impairment losses on financial assets (net)

     (859     (129     (92     (750     (42     (306     2        (2,177     51        (2,126

Provisions (net) and other gains (losses)

     (239     (326     (13     (42     (17     (54     (118     (808     10        (798
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit/ (loss) before tax

     867        (619     447        1,188        266        959        (999     2,109        (41     2,068   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income tax

     (258     176        (85     (287     (70     (265     224        (566     42        (524
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit from continuing operations

     609        (443     362        900        196        694        (775     1,544        —          1,544   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit from discontinued operations /Profit from corporate operations (net) (**)

     —          —          —          —          —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit

     609        (443     362        900        196        694        (775     1,544        —          1,544   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit attributable to non-controlling interests

     (2     (3     —          —          —          (212     1        (215     —          (215
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit attributable to parent company

     608        (446     362        900        196        483        (774     1,328        —          1,328   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*) Includes share of profit or loss of entities accounted for using the equity method.
(**) For Group income this line represents “Profit from discontinued operations” and for operating segments it represents “Profit from corporate operations”.

 

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

Net interest income

     2,057        43        489        2,227        699        2,124        (336     7,302        (403     6,899   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net fees and commissions

     701        6        206        581        251        452        (19     2,178        (97     2,081   

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

     415        19        166        114        95        326        215        1,350        (41     1,309   

Other operating income and expenses net (*)

     81        (65     167        177        2        (315     13        60        255        315   

Administration costs

     (1,475     (62     (336     (1,095     (619     (1,062     (369     (5,017     184        (4,833

Depreciation and amortization

     (56     (11     (27     (81     (90     (79     (212     (555     20        (535

Impairment losses on financial assets (net)

     (1,164     (271     (191     (730     (36     (318     (1     (2,712     77        (2,635

Provisions (net) and other gains (losses)

     (114     (505     (35     (31     —          (48     (25     (757     654        (103
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit/ (loss) before tax

     446        (846     440        1,161        302        1,079        (734     1,848        650        2,498   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income tax

     (111     220        (88     (289     (99     (279     178        (466     (135     (601
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit from continuing operations

     335        (626     352        872        203        801        (556     1,382        515        1,897   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit from discontinued operations/ Profit from corporate operations (net) (**)

     440        —          —          —          —          —          1,468        1,908        (515     1,393   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit

     775        (626     352        872        203        801        912        3,290        —          3,290   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit attributable to non-controlling interests

     (19     (2     —          —          —          (252     (135     (408     —          (408
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit attributable to parent company

     756        (628     352        872        203        549        777        2,882        —          2,882   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*) Includes share of profit or loss of entities accounted for using the equity method.
(**) For Group income this line represents “Profit from discontinued operations” and for operating segments it represents “Profit from corporate operations”.

 

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Results of Operations by Operating Segment for the Six Months Ended June 30, 2014 Compared to the Six Months Ended June 30, 2013

SPAIN

 

     For the Six
Months

Ended June 30,
       
     2014     2013     Change  
     (In Millions of Euros)     (In %)  

Net interest income

     1,867        2,057        (9.2
  

 

 

   

 

 

   

Net fees and commissions

     734        701        4.6   

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

     642        415        54.6   

Other operating income and expenses (net)

     140        81        73.5   

Administration costs

     (1,366     (1,475     (7.4

Depreciation and amortization

     (52     (56     (6.8

Impairment losses on financial assets (net)

     (859     (1,164     (26.2

Provisions (net) and other gains (losses)

     (239     (114     110.0   
  

 

 

   

 

 

   

Operating profit before tax

     867        446        94.5   
  

 

 

   

 

 

   

Income tax

     (258     (111     132.6   
  

 

 

   

 

 

   

Profit from continuing operations

     609        335        81.8   
  

 

 

   

 

 

   

Profit from corporate operations (net)

     —          440        n.m. (1) 
  

 

 

   

 

 

   

Profit

     609        775        (21.4
  

 

 

   

 

 

   

Profit attributable to non-controlling interests

     (2     (19     (90.8
  

 

 

   

 

 

   

Profit attributable to parent company

     608        756        (19.7
  

 

 

   

 

 

   

 

(1) Not meaningful.

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2014 amounted to €1,867 million, a 9.2% decrease compared with the €2,057 million recorded for the six months ended June 30, 2013. This decrease was mainly due to the impact during the six month ended June 30, 2014, of the elimination of “floor clauses” (clauses limiting the interest rate floors in mortgage loans granted to consumers) in residential mortgage loans (during the six months ended June 30, 2013 the impact was lower because the clauses were removed beginning on May 9, 2013), which more than offset the moderate improvement in credit activity. In the prevailing low interest rates environment, the decrease in financial income has been partially offset by the decrease in the cost of liabilities.

Net fees and commissions

Net fees and commissions of this operating segment for the six months ended June 30, 2014 amounted to €734 million, a 4.6% increase compared with the €701 million recorded for the six months ended June 30, 2013, mainly due to the increase of fees and commissions charged by mutual and pension funds, as well as increased fees and commissions relating to the underwriting of security issues and the placement of securities.

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, 2014 amounted to €642 million, a 54.6% increase compared with the €415 million recorded for the six months ended June 30, 2013, as a result of gains on the sale of available-for-sale securities including sovereign bonds managed by ALCO, which were positively affected by the improved market perception on sovereign debt as a result of the lower credit risk and the lower sovereign risk premiums paid by more recent issuances.

Other operating income and expenses (net)

Other operating income and expenses (net) of this operating segment for the six months ended June 30, 2014 amounted to €140 million, a 73.5% increase compared with the €81 million recorded for the six months ended June 30, 2013, mainly due to the increase of dividends received in market operations and a higher contribution from the insurance activity.

 

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Administration costs

Administration costs of this operating segment for the six months ended June 30, 2014 amounted to €1,366 million, a 7.4% decrease compared with the €1,475 million recorded for the six months ended June 30, 2013, as a result of cost containment measures, reduction of variable remuneration to employees, office closures and workforce reduction.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) of this operating segment for the six months ended June 30, 2014 amounted to €859 million, a 26.2% decrease compared with the €1,164 million recorded for the six months ended June 30, 2013, due to the decrease in non-performing loans and the fact that the collateral value of the loans in this portfolio deteriorated more in the first half of 2013 than in the first half of 2014.

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, 2014 was €867 million, compared with operating profit before tax of €446 million recorded in the six months ended June 30, 2013.

Income tax

Income tax of this operating segment for the six months ended June 30, 2014 amounted to €258 million, a 132.6% increase compared with the €111 million recorded for the six months ended June 30, 2013, mainly due to the higher operating profit before tax.

Profit from continuing operations (net)

As a result of the foregoing, profit from continuing operations of this operating segment for the six months ended June 30, 2014 amounted to €609 million, an 81.8% increase compared with the €335 million recorded for the six months ended June 30, 2013.

Profit from corporate operations (net)

Profit from corporate operations (net) of this operating segment for the six months ended June 30, 2014 was nil, as there were no corporate operations during such period. During the six months ended June 30, 2013, profit from corporate operations totaled €440 million due to the capital gain generated by the VIF (Value of In-Force) monetization transaction entered into by BBVA Seguros and 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).

Profit attributable to parent company

Profit attributable to parent company of this operating segment for the six months ended June 30, 2014 amounted to €608 million, a 19.7% decrease compared with the €756 million recorded for the six months ended June 30, 2013. This decrease was mainly due to the year-on-year decrease in profit from corporate operations described above.

 

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REAL ESTATE ACTIVITY IN SPAIN

 

     For the Six Months
Ended June 30,
       
     2014     2013     Change  
     (In Millions of Euros)     (In %)  

Net interest income

     (18     43        n.m. (1) 
  

 

 

   

 

 

   

Net fees and commissions

     —          6        (100.0

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

     15        19        (21.1

Other operating income and expenses (net)

     (83     (65     27.2   

Administration costs

     (67     (62     8.0   

Depreciation and amortization

     (12     (11     5.8   

Impairment losses on financial assets (net)

     (129     (271     (52.3

Provisions (net) and other gains (losses)

     (326     (505     (35.4
  

 

 

   

 

 

   

Operating profit/loss before tax

     (619     (846     (26.8
  

 

 

   

 

 

   

Income tax

     176        220        (20.0
  

 

 

   

 

 

   

Profit from continuing operations

     (443     (626     (29.2
  

 

 

   

 

 

   

Profit from corporate operations (net)

     —          —          n.m. (1) 
  

 

 

   

 

 

   

Profit

     (443     (626     (29.2
  

 

 

   

 

 

   

Profit attributable to non-controlling interests

     (3     (2     36.0   
  

 

 

   

 

 

   

Profit attributable to parent company

     (446     (628     (29.0
  

 

 

   

 

 

   

 

(1) Not meaningful.

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2014 was a loss of €18 million, compared with the €43 million gain recorded for the six months ended June 30, 2013, as a result of a reduction in the loan portfolio.

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, 2014 amounted to a gain of €15 million, a 21.1% decrease compared with the €19 million gain recorded for the six months ended June 30, 2013.

Other operating income and expenses (net)

Other operating income and expenses (net) of this operating segment for the six months ended June 30, 2014 was a loss of €83 million, a 27.2% increase compared with the €65 million loss recorded for the six months ended June 30, 2013, mainly due to the increase in costs relating to the sale of properties.

Administration costs

Administration costs of this operating segment for the six months ended June 30, 2014 was €67 million, an 8.0% increase compared to the €62 million recorded for the six months ended June 30, 2013, as a result of the increase in general and administrative expenses mainly due to taxes other than income tax.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) of this operating segment for the six months ended June 30, 2014 totaled €129 million, a 52.3% decrease compared with the €271 million recorded for the six months ended June 30, 2013, mainly due to the decrease in non-performing loans and recoveries of one-off transactions in the first half of 2014.

 

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Provisions (net) and other gains (losses)

Provisions (net) and other gains (losses) of this operating segment for the six months ended June 30, 2014 was a loss of €326 million, a 35.4% decrease compared with the €505 million loss recorded for the six months ended June 30, 2013, as a result of the fact that property appraisals and the collateral of loans in this portfolio deteriorated more in the first half of 2013 than in the first half of 2014.

Operating profit / (loss) before tax

As a result of the foregoing, the operating loss before tax of this operating segment for the six months ended June 30, 2014 was a loss of €619 million, a 26.8% decrease compared with the €846 million loss recorded for the six months ended June 30, 2013.

Income tax

Income tax of this operating segment for the six months ended June 30, 2014 amounted to a €176 million benefit, a 20% decrease compared with the €220 million benefit recorded for the six months ended June 30, 2013, mainly due to a lower operating loss before tax.

Profit / (loss) attributable to parent company

As a result of the foregoing, loss attributable to parent company of this operating segment for the six months ended June 30, 2014 was €446 million, a 29.0% decrease from the €628 million loss recorded in the six months ended June 30, 2013.

EURASIA

In accordance with IFRS 8, the information for the Eurasia operating segment is presented under management criteria, pursuant to which Garanti’s information has been proportionally integrated based on our 25.01% interest in Garanti.

 

     For the Six Months
Ended June 30,
       
     2014     2013     Change  
     (In Millions of Euros)     (In %)  

Net interest income

     408        489        (16.6
  

 

 

   

 

 

   

Net fees and commissions

     191        206        (7.3

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

     121        166        (27.3

Other operating income and expenses (net)

     184        167        9.9   

Administration costs

     (329     (336     (2.0

Depreciation and amortization

     (22     (27     (16.0

Impairment losses on financial assets (net)

     (92     (191     (51.7

Provisions (net) and other gains (losses)

     (13     (35     (63.8
  

 

 

   

 

 

   

Operating profit before tax

     447        440        1.6   
  

 

 

   

 

 

   

Income tax

     (85     (88     (2.9
  

 

 

   

 

 

   

Profit from continuing operations

     362        352        2.8   
  

 

 

   

 

 

   

Profit from corporate operations (net)

     —          —