6-K 1 d30884d6k.htm FORM 6-K Form 6-K
Table of Contents

 

 

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, 2015

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)

 

 

Calle Sauceda 28

28050 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

 

 

 


Table of Contents

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

     4   

Business Overview

     7   

Selected Statistical Information

     14   

Operating and Financial Review and Prospects

     33   

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.


Table of Contents

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, 2015, and for the six months ended June 30, 2015 and 2014 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”, “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;

 

1


Table of Contents
    changes in applicable laws and regulations, including increased capital and provision requirements and taxation, and steps taken towards achieving an EU fiscal and banking union;

 

    the monetary, interest rate and other policies of central banks in the EU, Spain, 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 spending, saving and investment decisions;

 

    adverse developments in emerging countries, in particular Latin America and Turkey, including unfavorable political and economic developments, social instability and changes in governmental policies, including expropriation, nationalization, international ownership legislation, interest-rate caps and tax policies;

 

    our ability to hedge certain risks economically;

 

    downgrades in our credit ratings or in the Kingdom of Spain’s credit ratings;

 

    the success of our acquisitions (including the recent acquisition of an additional stake in Türkiye Garanti Bankası A.Ş.), divestitures, mergers and strategic alliances;

 

    our ability to make payments on certain substantial unfunded amounts relating to commitments with personnel;

 

    the performance of our international operations and our ability to manage such operations;

 

    weaknesses or failures in our Group’s internal processes, systems (including information technology systems) and security;

 

    our success in managing the risks involved in the foregoing, which depends, among other things, on our ability to anticipate events that are not 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.

 

2


Table of Contents

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 months ended June 30, 2015 and 2014. 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, we have recently introduced changes to our segment reporting. In particular, since January 1, 2015, our former Eurasia segment has been broken down into the following two segments: Turkey, which consists of our stake in the Turkish bank Türkiye Garanti Bankası A.Ş. (“Garanti”) (25.01% until July 27, 2015 and 39.90% since July 27, 2015), and Rest of Eurasia, which includes the retail and wholesale businesses carried out in Europe and Asia, other than Spain and Turkey.

The change in our segment reporting referred to above is mainly the result of the acquisition from Doğuş Holding A.Ş., Ferit Faik Şahenk, Dianne Şahenk and Defne Şahenk of 62,538,000,000 shares of Garanti in the aggregate on July 27, 2015, under certain agreements entered into on November 19, 2014. After the completion of this acquisition, we hold approximately 39.90% of Garanti’s share capital and Garanti’s results are fully consolidated in our consolidated financial statements.

In order to present information on a comparable basis, the segment information for the six months ended June 30, 2014 included in this report has been recast to reflect our new segmentation.

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 compute due to rounding. In addition, information regarding period-to-period changes is based on numbers which have not been rounded.

 

3


Table of Contents

Selected Consolidated Financial Data

The historical financial information set forth below for the six months ended June 30, 2015 and 2014 has been selected from, and should be read together with, the Interim Consolidated Financial Statements included herein.

For information concerning the preparation and presentation of the financial information contained herein, see “Presentation of Financial Information”.

 

     Six Months Ended June 30,  
     2015     2014     Change (%)  
    

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

(In Euros))

 

Consolidated Statement of Income Data

      

Interest and similar income

     10,665        11,000        (3.0 )% 

Interest and similar expenses

     (3,570     (4,276     (16.5 )% 

Net interest income

     7,096        6,724        5.2

Dividend income

     236        370        (36.2 )% 

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

     195        155        25.8

Fee and commission income

     2,801        2,617        7.0

Fee and commission expenses

     (682     (625     9.1

Net gains(losses) on financial assets and liabilities

     826        978        (15.5 )% 

Net exchange differences

     620        173        258.4

Other operating income

     2,271        2,242        1.3

Other operating expenses

     (2,144     (2,552     (16.0 )% 

Gross income

     11,219        10,082        11.28

Administration costs

     (4,927     (4,542     8.5

Depreciation and amortization

     (572     (548     4.4

Net operating income

     5,720        4,992        14.58

Provisions (net)

     (392     (433     (9.5 )% 

Impairment losses on financial assets (net)

     (2,137     (2,126     0.5

Impairment losses on other assets (net)

     (128     (98     30.6

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

     23        14        64.3

Negative goodwill

     22        —          n.m. (*) 

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

     791        (281     n.m. (*) 

Operating profit before tax

     3,899        2,067        88.6

Income tax

     (941     (524     79.6

Profit from continuing operations

     2,958        1,544        91.6

Profit from discontinued operations (net)

     —          —          0.0

Profit

     2,958        1,544        91.6

Profit attributable to parent company

     2,759        1,328        107.8

Profit attributable to non-controlling interests

     200        215        (7.0 )% 

Per share/ADS(1) Data

      

Number of shares outstanding (at period end)

     6,305,238,012        5,887,168,710     

Profit attributable to parent company (2)

     0.43        0.21     

Dividends declared

     0.08        0.08     

 

(*) Not meaningful.

 

4


Table of Contents
(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 and, for comparative purposes, a correction factor to account for the capital increases carried out in April 2014, October 2014, January 2015 and April 2015 and excluding the weighted average number of treasury shares during the period (6,264 million and 6,026 million shares for the six months ended June 30, 2015 and 2014, respectively). See Note 5 to the Interim Consolidated Financial Statements.

 

     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,
 
     2015     2014     2014  
     (In Millions of Euros, Except Percentages)  

Consolidated Balance Sheet Data

      

Total assets

     669,204        631,942        599,420   

Common stock

     3,090        3,024        2,885   

Loans and receivables (net)

     399,984        372,375        359,084   

Customer deposits

     351,354        319,060        310,442   

Debt certificates and subordinated liabilities

     77,144        72,191        75,303   

Non-controlling interest

     1,728        2,511        2,048   

Stockholders’ equity

     50,997        51,609        46,867   

Consolidated ratios

      

Profitability ratios:

      

Net interest margin(1)

     2.15     2.40     2.30

Return on average total assets(2)

     0.8     0.5     0.5

Return on average equity(3)

     9.8     5.8     5.8

Credit quality data

      

Loan loss reserve (4)

     17,741        14,277        14,726   

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

     4.44     3.83     4.10

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

     6.27     5.98     6.57

Impaired loans and advances to customers

     25,300        22,703        24,159   

Impaired contingent liabilities to customers(6)

     590        413        414   
  

 

 

   

 

 

   

 

 

 
     25,890        23,116        24,573   
  

 

 

   

 

 

   

 

 

 

Loans and advances to customers(7)

     378,803        352,901        341,931   

Contingent liabilities to customers

     34,230        33,741        32,157   
  

 

 

   

 

 

   

 

 

 
     413,033        386,642        374,088   
  

 

 

   

 

 

   

 

 

 

 

(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, 2015 and 2014, 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, 2015 and 2014, 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, 2015 and 2014, 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.
(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.

 

5


Table of Contents
(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 approximately to 6.7% as of June 30, 2015, 6.4% as of December 31, 2014 and 7.1% as of June 30, 2014.
(7) Gross of provisions.

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)  

2010

     1.3216   

2011

     1.4002   

2012

     1.2908   

2013

     1.3303   

2014

     1.3210   

2015 (through September 25, 2015)

     1.1106   

 

(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, 2015

     1.1212         1.0524   

April 30, 2015

     1.1174         1.0582   

May 31, 2015

     1.1428         1.0876   

June 30, 2015

     1.1404         1.0913   

July 31, 2015

     1.1150         1.0848   

August 31, 2015

     1.1580         1.0868   

September 30, 2015 (through September 25, 2015)

     1.1358         1.1104   

The noon buying rate for euro from the Federal Reserve Bank of New York, expressed in dollars per €1.00, on September 25, 2015, was $1.1192.

As of June 30, 2015, approximately 41% of our assets and approximately 41% 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 7.4 to our Interim Consolidated Financial Statements (“Market Risk—Structural Exchange Rate Risk”).

 

6


Table of Contents

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 seven operating segments:

 

    Banking Activity in Spain

 

    Real Estate Activity in Spain

 

    Turkey

 

    Rest of Eurasia

 

    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 holdings in some of Spain’s leading companies 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, 2015 and December 31, 2014 is as follows:

 

     As of June 30, 2015      As of December 31, 2014  
     (In Millions of Euros)  

Banking Activity in Spain

     351,943         318,446   

Real Estate Activity in Spain

     17,919         17,365   

Turkey (1)

     22,499         22,342   

Rest of Eurasia

     19,952         22,325   

Mexico

     96,855         93,731   

South America

     71,441         84,364   

United States

     80,809         69,261   
  

 

 

    

 

 

 

Subtotal Assets of Operating Segments

     661,418         627,834   
  

 

 

    

 

 

 

Corporate Center and other adjustments (2)

     7,786         4,108   
  

 

 

    

 

 

 

Total Assets BBVA Group

     669,204         631,942   
  

 

 

    

 

 

 

 

(1) The information is presented under management criteria, pursuant to which Garanti information has been proportionally consolidated based on our 25.01% interest in Garanti as of the reporting dates.
(2) 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. For more information, see “Operating and Financial Review and Prospects”.

 

7


Table of Contents

The following table sets forth information relating to the profit or loss attributable to parent company by each of BBVA’s operating segments and Corporate Center for the six months ended June 30, 2015 and 2014:

 

     Profit/(Loss)
Attributable to Parent
Company
    % of Profit/(Loss)
Attributable to Parent
Company
 
     Six Months Ended June 30,  
     2015     2014     2015     2014  
     (In Millions of Euros)     (In Percentage)  

Banking Activity in Spain

     809        608        29.3        45.8   

Real Estate Activity in Spain

     (300     (465     (10.9     (35.0

Turkey (1)

     174        155        6.3        11.6   

Rest of Eurasia

     43        208        1.6        15.7   

Mexico

     1,041        900        37.7        67.8   

South America

     474        481        17.2        36.2   

United States

     286        196        10.4        14.8   
  

 

 

   

 

 

     

Subtotal operating segments

     2,528        2,083       
  

 

 

   

 

 

     

Corporate Center

     231        (755    
  

 

 

   

 

 

     

Profit attributable to parent company

     2,759        1,328       
  

 

 

   

 

 

     

 

(1) The information is presented under management criteria, pursuant to which Garanti information has been proportionally consolidated based on our 25.01% interest in Garanti during the reported periods.

The following table sets forth information relating to the income of each operating segment for the six months ended June 30, 2015 and 2014 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
    Turkey
(1)
     Rest of
Eurasia
     Mexico      South
America
     United
States
     Corporate
Center
    Total      Adjustments
(2)
    BBVA
Group
 
     (In Millions of Euros)  

June 2015

                             

Net interest income

     1,982         (14     425         85         2,734         1,652         881         (225     7,521         (425     7,096   

Gross income

     3,711         (56     510         265         3,558         2,297         1,332         (63     11,554         (335     11,219   

Net operating income

     2,208         (125     289         89         2,248         1,283         449         (605     5,836         (116     5,720   

Operating profit/(loss) before tax

     1,152         (437     219         66         1,380         927         390         (652     3,046         853        3,899   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Profit

     809         (300     174         43         1,041         474         286         230        2,759         —          2,759   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

June 2014

                             

Net interest income

     1,869         (22     314         95         2,354         2,061         693         (325     7,363         (639     6,724   

Gross income

     3,384         (118     442         463         3,134         2,362         1,037         (335     10,703           10,082   

Net operating income

     1,965         (193     255         298         1,980         1,317         324         (852     5,945           4,992   

Operating profit/(loss) before tax

     868         (661     196         253         1,188         956         266         (957     3,066         (999     2,067   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Profit

     608         (465     155         208         900         481         196         (755     1,328         —          1,328   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(1) The information is presented under management criteria, pursuant to which Garanti information has been proportionally integrated based on our 25.01% interest in Garanti during the reported periods.
(2) 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.

 

8


Table of Contents

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 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, Banking Activity in Spain includes certain loans and advances portfolios, and finance and structural euro balance sheet positions.

The following table sets forth information relating to the activity of this operating segment as of June 30, 2015 and December 31, 2014:

 

     As of June 30,
2015
     As of December 31,
2014
 
     (In Millions of Euros)  

Total Assets

     351,943         318,446   

Loans and advances to customers

     196,615         174,201   

Customer deposits

     187,968         154,261   

Mutual funds

     32,892         29,649   

Pension funds

     23,106         21,880   

NPA ratio (%)

     6.8         6.0   

On April 24, 2015, we completed the acquisition of Catalunya Banc, S.A. (“Catalunya Banc”) for a price of €1,187 million. As a result of this acquisition, we have gained 1.5 million new customers and doubled our market share in Catalonia in terms of branches and customer deposits. This acquisition has affected this segment’s period-on-period comparison given Catalunya Bank’s balance sheet is first included in this segment as of June 30, 2015 and its income statement from its acquisition whereas neither is included in the prior period.

Loans and advances to customers of this operating segment as of June 30, 2015 amounted to €196,615 million, a 12.9% increase from the €174,201 million recorded as of December 31, 2014, mainly as a result of the acquisition of Catalunya Banc in April 2015 which contributed €23,459 million.

Customer deposits in this operating segment as of June 30, 2015 amounted to €187,968 million, a 21.9% increase from the €154,261 million recorded as of December 31, 2014, mainly as a result of the acquisition of Catalunya Banc in April 2015 which contributed €29,555 million.

 

9


Table of Contents

Mutual funds in this operating segment as of June 30, 2015 amounted to €32,892 million, a 10.9% increase from the €29,649 million recorded as of December 31, 2014. Pension funds in this operating segment as of June 30, 2015 amounted to €23,106 million, a 5.6% increase from the €21,880 million recorded as of December 31, 2014. These increases were mainly the result of the active marketing of a diversified portfolio of mutual and pension funds to certain customer segments in an environment of low interest rates.

This operating segment’s non-performing asset ratio increased to 6.8% as of June 30, 2015, from 6.0% as of December 31, 2014, mainly due to the acquisition of Catalunya Banc, which had a higher level of non-performing loans. This operating segment’s non-performing assets coverage ratio increased to 62% as of June 30, 2015, from 45% as of December 31, 2014.

Real Estate Activity in Spain

This operating segment was set up in 2013 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 and the disposition of foreclosed real estate assets.

In the six months ended June 30, 2015, we continued with our strategy of reducing our net exposure to the real estate sector in Spain, including loans and advances to customers and foreclosed assets. However, with the incorporation of Catalunya Banc in April 2015, the net exposure of the Group in Spain as of June 30, 2015 stood at €13,147 million, up 4.8% since December 31, 2014. Non-performing assets of this segment have continued to decline and as of June 30, 2015 were 1.2% lower than as of December 31, 2014, due mainly to asset quality improvement. The coverage of non-performing and potential problem loans of this segment increased to 65.3% as of June 30, 2015 compared to 62.8% as of December 31, 2014, due mainly to asset quality improvement.

Turkey

This operating segment consists of our stake in Garanti (25.01% as of the reporting dates). The following table sets forth information relating to the business activity of this operating segment as of June 30, 2015 and December 31, 2014:

 

     As of June 30,
2015
     As of December 31,
2014
 
     (In Millions of Euros)  

Total Assets

     22,499         22,342   

Loans and advances to customers

     14,355         13,635   

Customer deposits

     12,018         11,626   

Mutual funds

     352         344   

Pension funds

     563         538   

NPA ratio (%)

     2.7         2.8   

The Turkish lira depreciated against the euro as of June 30, 2015 compared to December 31, 2014, negatively affecting the business activity of the Turkey operating segment as of June 30, 2015 expressed in euro. See “Operating and Financial Review and Prospects—Factors Affecting the Comparability of our Results of Operations and Financial Condition.”

Loans and advances to customers of this operating segment as of June 30, 2015 amounted to €14,355 million, a 5.3% increase from the €13,635 million recorded as of December 31, 2014, as a result of the increase in the size of the mortgage loan portfolio and the increase in consumer lending and credit card activity.

 

10


Table of Contents

Customer deposits in this operating segment as of June 30, 2015 amounted to €12,018 million, a 3.4% increase from the €11,626 million recorded as of December 31, 2014, as a result of increased volume in current and savings accounts and time deposits.

Off-balance sheet funds of this operating segment as of June 30, 2015 amounted to €915 million, a 3.7% increase from the €882 million recorded as of December 31, 2014 due to the growth of pension funds and, to a lesser extent, mutual funds.

This operating segment’s non-performing asset ratio was 2.7% as of June 30, 2015, compared to 2.8% as of December 31, 2014, mainly as a result of a lower volume of contingent risks. This operating segment non-performing assets coverage ratio was 119% as of June 30, 2015, compared to 115% as of December 31, 2014.

Rest of Eurasia

This operating segment includes the retail and wholesale businesses carried out by the Group in Europe (mainly Portugal) and Asia, other than in Spain and Turkey. The following table sets forth information relating to the business activity of this operating segment as of June 30, 2015 and December 31, 2014:

 

     As of June 30,
2015
     As of December 31,
2014
 
     (In Millions of Euros)  

Total Assets

     19,952         22,325   

Loans and advances to customers

     15,742         15,795   

Customer deposits

     11,809         11,045   

Mutual funds

     1,185         1,205   

Pension funds

     338         314   

NPA ratio (%)

     3.4         3.7   

Loans and advances to customers of this operating segment as of June 30, 2015 amounted to €15,742 million, a 0.3% decrease from the €15,795 million recorded as of December 31, 2014, mainly as a result of the maturity of loan instruments of some of our wholesale customers.

Customer deposits of this operating segment as of June 30, 2015 amounted to €11,809 million, a 6.9% increase from the €11,045 million recorded as of December 31, 2014, as a result of the increase in current and savings accounts and time deposits.

Off-balance sheet funds of this operating segment as of June 30, 2015 amounted to €1,523 million, a 0.2% increase from the €1,519 million recorded as of December 31, 2014.

This operating segment’s non-performing asset ratio decreased to 3.4% as of June 30, 2015, from 3.7% as of December 31, 2014. This operating segment’s non-performing assets coverage ratio was 86% as of June 30, 2015, compared to 80% as of December 31, 2014.

 

11


Table of Contents

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, 2015 and December 31, 2014:

 

     As of June 30,
2015
     As of December 31,
2014
 
     (In Millions of Euros)  

Total Assets

     96,855         93,731   

Loans and advances to customers

     49,627         46,798   

Customer deposits

     50,497         45,937   

Off-balance sheet funds

     20,260         18,691   

NPA ratio (%)

     2.8         2.9   

The Mexican peso appreciated against the euro as of June 30, 2015 compared to December 31, 2014, positively affecting the business activity of the Mexico operating segment as of June 30, 2015 expressed in euro. See “Operating and Financial Review and Prospects—Factors Affecting the Comparability of our Results of Operations and Financial Condition.”

Loans and advances to customers of this operating segment as of June 30, 2015 amounted to €49,627 million, a 6.0% increase from the €46,798 million recorded as of December 31, 2014, mainly due to a 3.9% increase in the wholesale portfolio (especially in commercial and public sector loans) and a 7.5% increase in the retail portfolio (over 10% increase in financing to medium-sized enterprises and personal consumer loans).

Customer deposits of this operating segment as of June 30, 2015 amounted to €50,497 million, a 9.9% increase from the €45,937 million recorded as of December 31, 2014, mainly as a result of the increase in time deposits (20% increase) and, to a lesser extent, in current and savings accounts (3.8% increase).

Off-balance sheet funds (consisting exclusively of mutual funds) of this operating segment as of June 30, 2015 amounted to €20,260 million, an 8.4% increase from the €18,691 million recorded as of December 31, 2014, mainly as a result of increased of mutual fund activity, which resulted in an increase in the volume of assets managed by BBVA Bancomer.

This operating segment’s non-performing asset ratio decreased to 2.8% as of June 30, 2015, from 2.9% as of December 31, 2014. This operating segment non-performing assets coverage ratio increased to 116% as of June 30, 2015, from 114% as of December 31, 2014.

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

 

12


Table of Contents

The following table sets forth information relating to the business activity of this operating segment as of June 30, 2015 and December 31, 2014:

 

     As of June 30,
2015
     As of December 31,
2014
 
     (In Millions of Euros)  

Total Assets

     71,441         84,364   

Loans and advances to customers

     46,403         52,920   

Customer deposits

     43,338         56,370   

Mutual funds

     4,328         3,848   

Pension funds

     5,381         4,632   

NPA ratio (%)

     2.3         2.1   

The Venezuelan bolivar fuerte depreciated significantly against the euro as of June 30, 2015 compared to December 31, 2014, more than offsetting the period-end appreciation of the currencies of other South American countries where we operate and negatively affecting the business activity of the South America operating segment as of June 30, 2015 expressed in euro. See “Operating and Financial Review and Prospects—Factors Affecting the Comparability of our Results of Operations and Financial Condition.”

Loans and advances to customers of this operating segment as of June 30, 2015 amounted to €46,403 million, a 12.3% decrease from the €52,920 million recorded as of December 31, 2014, mainly due to the significant depreciation of the Venezuelan Bolivar which more than offset the positive performance in Argentina, Colombia, Chile and Peru (attributable in part to the appreciation of such countries’ currencies against the euro).

Customer deposits of this operating segment as of June 30, 2015 amounted to €43,338 million, a 23.1% decrease from the €56,370 million recorded as of December 31, 2014, mainly due to the depreciation of the Venezuelan Bolivar which more than offset the increase in the balance of current and saving accounts and time deposits in Argentina, Colombia , Chile and Peru (attributable in part to the appreciation of such countries’ currencies against the euro).

Mutual funds of this operating segment as of June 30, 2015 amounted to €4,328 million, a 12.5% increase from the €3,848 million recorded as of December 31, 2014, mainly as a result of positive performances in Argentina, Colombia, Chile and Peru.

Pension funds of this operating segment as of June 30, 2015 amounted to €5,381 million, a 16.2% increase from the €4,632 million recorded as of December 31, 2014, mainly as a result of the positive performance in Bolivia.

This operating segment’s non-performing asset ratio increased to 2.3% as of June 30, 2015, from 2.1% as of December 31, 2014. This operating segment non-performing assets coverage ratio decreased to 122% as of June 30, 2015, from 138% as of December 31, 2014.

United States

This operating segment encompasses the Group’s business in the United States. BBVA Compass accounted for approximately 90% of the operating segment’s balance sheet as of June 30, 2015. Given its relative size in this segment, most of the comments below refer to BBVA Compass. This operating segment also includes the assets and liabilities of the BBVA office in New York, which specializes in transactions with large corporations.

 

13


Table of Contents

The following table sets forth information relating to the business activity of this operating segment as of June 30, 2015 and December 31, 2014:

 

     As of June 30,
2015
     As of December 31,
2014
 
     (In Millions of Euros)  

Total Assets

     80,809         69,261   

Loans and advances to customers

     57,176         49,667   

Customer deposits

     57,569         51,394   

NPA ratio (%)

     0.9         0.9   

The U.S. dollar appreciated against the euro as of June 30, 2015 compared to December 31, 2014, positively affecting the business activity of the United States operating segment as of June 30, 2015 expressed in euro. See “Operating and Financial Review and Prospects—Factors Affecting the Comparability of our Results of Operations and Financial Condition.”

Loans and advances to customers in this operating segment as of June 30, 2015 amounted to €57,176 million, a 15.1% increase from the €49,667 million recorded as of December 31, 2014, as a result of growth in all of the segment’s portfolios (particularly developer, commercial and consumer finance portfolios).

Customer deposits in this operating segment as of June 30, 2015 amounted to €57,569 million, a 12.0% increase from the €51,394 million recorded as of December 31, 2014, mainly due to an increase in the balance of time deposits (18% increase) as a result of campaigns designed to attract deposits.

This operating segment’s non-performing asset ratio as of June 30, 2015 and December 31, 2014 was 0.9%. This operating segment non-performing assets coverage ratio decreased to 151% as of June 30, 2015, from 167% as of December 31, 2014, as a result of the increase in the loans and advances to customers.

Selected Statistical Information

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

Average Balances and Rates

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

 

     Average Balance Sheet - Assets and Interest from Earning Assets  
     Six Months ended June 30, 2015     Six Months ended June 30, 2014  
     Average
Balance
     Interest      Average
Yield (1)
    Average
Balance
     Interest      Average
Yield (1)
 
     (In Millions of Euros, Except Percentages)  

Assets

                

Cash and balances with central banks

     27,754         62         0.45     25,996         110         0.85

Debt securities, equity instruments and derivatives

     197,660         1,951         1.99     168,490         2,179         2.61

Loans and receivables

     382,952         8,559         4.47     345,432         8,647         5.01

Loans and advances to credit institutions

     29,560         122         0.83     22,843         152         1.34

Loans and advances to customers

     353,392         8,437         4.81     322,588         8,495         5.31

In euro(2)

     188,383         2,181         2.33     189,074         2,507         2.67

In other currencies(3)

     165,009         6,256         7.65     133,514         5,988         9.04

Other financial income

     —           —           —          —           —           —     

Non-earning assets

     53,239         93         0.35     44,124         64         0.29
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total average assets

     661,606         10,665         3.25     584,042         11,000         3.80
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

(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.

 

14


Table of Contents
     Average Balance Sheet - Liabilities and Interest Paid on Interest
Bearing Liabilities
 
     Six Months ended June 30, 2015     Six Months ended June 30, 2014  
     Average
Balance
     Interest      Average
Yield (1)
    Average
Balance
     Interest      Average
Yield (1)
 
     (In Millions of Euros, Except Percentages)  

Liabilities

                

Deposits from central banks and credit institutions

     88,739         611         1.39     80,329         679         1.70

Customer deposits

     337,880         1,719         1.03     298,443         2,190         1.48

In euro(2)

     174,413         566         0.65     159,072         960         1.22

In other currencies(3)

     163,468         1,154         1.42     139,370         1,230         1.78

Debt certificates and subordinated liabilities

     84,885         837         1.99     81,070         947         2.36

Other financial costs

     —           —           —          —           —           —     

Non-interest-bearing liabilities

     97,085         403         0.84     79,086         459         1.17

Stockholders’ equity

     53,016         —           —          45,113         —           —     
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total average liabilities

     661,606         3,570         1.09     584,042         4,276         1.48
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

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

Changes in Net Interest Income-Volume and Rate Analysis

The following tables allocate changes in our net interest income between changes in volume and changes in rate for the six months ended June 30, 2015 compared to the six months ended June 30, 2014, and for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. Volume and rate variances 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 in which they are due. Loan fees were included in the computation of interest income.

 

     For the Six Months Ended June 30, 2015/June 30, 2014  
     Increase (Decrease) Due to Changes in  
     Volume (1)     Rate (2)     Net Change  
     (In Millions of Euros)  

Interest income

      

Cash and balances with central banks

     7        (55     (48

Securities portfolio and derivatives

     377        (606     (228

Loans and advances to credit institutions

     45        (74     (30

Loans and advances to customers

      

In euros

     (9     (316     (326

In other currencies

     1,413        (1,145     268   

Other assets

     13        15        29   
      

 

 

 

Total income

         (335
      

 

 

 

Interest expense

      

Deposits from central banks and credit institutions

     71        (140     (68

Customer deposits

      

In euros

     93        (487     (394

In other currencies

     213        (289     (77

Debt certificates and subordinated liabilities

     45        (154     (110

Other liabilities

     105        (161     (57
      

 

 

 

Total expense

         (706
      

 

 

 

Net interest income

         371   
      

 

 

 

 

(1) The volume effect is calculated as the result of the average interest rate of the earlier period multiplied by the difference between the average balances of both periods.
(2) The price effect is calculated as the result of the average balance of the last period multiplied by the difference between the average interest rates of both periods.

 

15


Table of Contents
     For the Six Months Ended June 30, 2014/June 30, 2013  
     Increase (Decrease) Due to Changes in  
     Volume (1)     Rate (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

      

In euros

     (319     (360     (679

In other currencies

     136        (193     (58

Other assets

     (3     2        (1
      

 

 

 

Total income

         (831
      

 

 

 

Interest expense

      

Deposits from central banks and credit institutions

     (88     (50     (138

Customer deposits

      

In euros

     54        (90     (36

In other currencies

     32        (117     (85

Debt certificates and subordinated liabilities

     (272     (166     (438

Other liabilities

     (34     74        40   
      

 

 

 

Total expense

         (656
      

 

 

 

Net interest income

         (175
      

 

 

 

 

(1) The volume effect is calculated as the result of the average interest rate of the earlier period multiplied by the difference between the average balances of both periods.
(2) The price effect is calculated as the result of the average balance of the last period multiplied by the difference between the average interest rates of both periods.

 

16


Table of Contents

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,  
     2015(*)     2014(*)  
     (In Millions of Euros, Except Percentages)  

Average interest earning assets

     608,366        539,918   

Gross yield(1)

     3.51     4.07

Net yield(2)

     3.22     3.77

Net interest margin (3)

     2.33     2.49

Average effective rate paid on all interest-bearing liabilities

     1.40     1.86

Spread(4)

     2.11     2.22

 

(*) 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, 2015, interbank deposits (excluding deposits with central banks) represented 3.8% of our total assets. Of such interbank deposits, 17.4% were held outside of Spain and 82.6% 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. However, such deposits 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, 2015, our total securities portfolio (consisting of investment securities and loans and receivables) was carried on our consolidated balance sheet at a carrying amount of €144,839 million (equivalent to its market or appraised value as of such date), representing 21.6% of our total assets. €47,491 million, or 32.8% of our total securities portfolio consisted of Spanish Treasury bonds and Treasury bills. The average yield for the six months ended June 30, 2015 on our investment securities was 3.2%, compared to an average yield of approximately 4.5% earned on loans and receivables for the six months ended June 30, 2015. See Notes 10 and 12 to the Interim Consolidated Financial Statements. For a discussion of our investments in affiliates, see Note 16 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, 2015 and December 31, 2014, 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.

 

17


Table of Contents
     As of June 30, 2015  
     Amortized Cost      Fair Value (1)      Unrealized Gains      Unrealized Losses  
     (In Millions of Euros)  

DEBT SECURITIES -

           

AVAILABLE FOR SALE PORTFOLIO

           
  

 

 

    

 

 

    

 

 

    

 

 

 

Domestic-

     43,770         45,418         1,794         (146
  

 

 

    

 

 

    

 

 

    

 

 

 

Spanish Government and other government agencies debt securities

     38,873         40,331         1,573         (115

Other debt securities

     4,897         5,087         221         (32

Issued by Central Banks

     —           —           —           —     

Issued by credit institutions

     2,914         3,019         133         (28

Issued by other institutions

     1,984         2,068         88         (4
  

 

 

    

 

 

    

 

 

    

 

 

 

International-

     51,761         52,308         1,161         (615
  

 

 

    

 

 

    

 

 

    

 

 

 

Mexico

     14,627         14,778         332         (181

Mexican Government and other government agencies debt securities

     12,320         12,473         308         (155

Other debt securities

     2,307         2,306         24         (25

Issued by Central Banks

     —           —           —           —     

Issued by credit institutions

     133         132         1         (2

Issued by other institutions

     2,174         2,174         23         (23

United States

     11,482         11,448         74         (108

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

     1,658         1,651         4         (11

States and political subdivisions debt securities

     3,432         3,442         19         (8

Other debt securities

     6,392         6,355         52         (89

Issued by Central Banks

     —           —           —           —     

Issued by credit institutions

     22         22         —           —     

Issued by other institutions

     6,371         6,333         52         (89

Other countries

     25,652         26,082         755         (326

Other foreign governments and other government agencies debt securities

     10,791         11,109         478         (160

Other debt securities

     14,862         14,973         277         (166

Issued by Central Banks

     2,056         2,055         3         (4

Issued by credit institutions

     3,305         3,416         159         (47

Issued by other institutions

     9,501         9,502         116         (115
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL AVAILABLE FOR SALE PORTFOLIO

     95,532         97,727         2,956         (761
  

 

 

    

 

 

    

 

 

    

 

 

 

HELD TO MATURITY PORTFOLIO

           
  

 

 

    

 

 

    

 

 

    

 

 

 

Domestic-

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

International-

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL HELD TO MATURITY PORTFOLIO

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL DEBT SECURITIES

     95,532         97,727         2,956         (761
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.

 

18


Table of Contents
     As of December 31, 2014  
     Amortized Cost      Fair Value (1)      Unrealized Gains      Unrealized Losses  
     (In Millions of Euros)  

DEBT SECURITIES -

           

AVAILABLE FOR SALE PORTFOLIO

           
  

 

 

    

 

 

    

 

 

    

 

 

 

Domestic-

     40,337         42,802         2,542         (77
  

 

 

    

 

 

    

 

 

    

 

 

 

Spanish Government and other government agencies debt securities

     34,445         36,680         2,290         (55

Other debt securities

     5,892         6,122         252         (22

Issued by Central Banks

     —           —           —           —     

Issued by credit institutions

     3,567         3,716         162         (13

Issued by other institutions

     2,325         2,406         90         (9
  

 

 

    

 

 

    

 

 

    

 

 

 

International-

     43,657         44,806         1,639         (490
  

 

 

    

 

 

    

 

 

    

 

 

 

Mexico

     12,662         13,060         493         (96

Mexican Government and other government agencies debt securities

     10,629         11,012         459         (76

Other debt securities

     2,034         2,048         34         (20

Issued by Central Banks

     —           —           —           —     

Issued by credit institutions

     141         142         3         (3

Issued by other institutions

     1,892         1,906         31         (17

United States

     10,289         10,307         102         (83

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

     1,539         1,542         6         (3

States and political subdivisions debt securities

     2,672         2,689         22         (5

Other debt securities

     6,078         6,076         73         (76

Issued by Central Banks

     —           —           —           —     

Issued by credit institutions

     24         24         —           —     

Issued by other institutions

     6,054         6,052         73         (76

Other countries

     20,705         21,439         1,044         (310

Other foreign governments and other government agencies debt securities

     10,355         10,966         715         (104

Other debt securities

     10,350         10,473         329         (206

Issued by Central Banks

     1,540         1,540         10         (9

Issued by credit institutions

     3,352         3,471         175         (55

Issued by other institutions

     5,459         5,461         143         (141
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL AVAILABLE FOR SALE PORTFOLIO

     83,994         87,608         4,181         (566
  

 

 

    

 

 

    

 

 

    

 

 

 

HELD TO MATURITY PORTFOLIO

           
  

 

 

    

 

 

    

 

 

    

 

 

 

Domestic-

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

International-

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL HELD TO MATURITY PORTFOLIO

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL DEBT SECURITIES

     83,994         87,608         4,181         (566
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.

 

19


Table of Contents

The following tables set forth the carrying amount and fair value of our ownership of equity securities as of June 30, 2015 and December 31, 2014, respectively. See Note 10 to the Interim Consolidated Financial Statements.

 

     As of June 30, 2015  
     Amortized cost      Fair Value(1)      Unrealized Gains      Unrealized Losses  
     (In Millions of Euros)  

EQUITY SECURITIES -

           

AVAILABLE FOR SALE PORTFOLIO

           

Domestic-

     3,463         3,603         143         (3

Equity listed

     3,389         3,529         142         (2

Equity unlisted

     74         74         1         (1

International-

     1,752         2,202         475         (25

United States-

     626         647         21         —     

Equity listed

     41         43         2         —     

Equity unlisted

     585         604         19         —     

Other countries-

     1,126         1,555         454         (25

Equity listed

     990         1,409         440         (21

Equity unlisted

     136         146         14         (4
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL AVAILABLE FOR SALE PORTFOLIO

     5,216         5,806         618         (28
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL EQUITY SECURITIES

     5,216         5,806         618         (28
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL INVESTMENT SECURITIES

     100,748         103,533         3,574         (789
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

EQUITY SECURITIES -

           

AVAILABLE FOR SALE PORTFOLIO

           

Domestic-

     3,177         3,199         93         (71

Equity listed

     3,129         3,150         92         (71

Equity unlisted

     48         49         1         —     

International-

     2,842         4,069         1,263         (36

United States-

     540         558         18         —     

Equity listed

     54         56         2         —     

Equity unlisted

     486         502         16         —     

Other countries-

     2,302         3,511         1,245         (36

Equity listed

     2,172         3,372         1,233         (33

Equity unlisted

     130         139         12         (3
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL AVAILABLE FOR SALE PORTFOLIO

     6,019         7,268         1,356         (107
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL EQUITY SECURITIES

     6,019         7,268         1,356         (107
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL INVESTMENT SECURITIES

     90,013         94,876         5,537         (673
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.

 

20


Table of Contents

The following table sets forth the maturities of our debt investment and fixed income securities, excluding our trading portfolio, by type and geographical area as of June 30, 2015.

 

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

DEBT SECURITIES

                 

AVAILABLE FOR SALE PORTFOLIO

                 

Domestic

                 

Spanish government and other government agencies debt securities

    2,771        1.05        17,373        2.88        12,870        3.57        7,318        4.90        40,331   

Other debt securities

    1,540        3.35        2,349        3.51        792        3.53        407        4.33        5,087   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Domestic

    4,311        1.90        19,722        2.95        13,661        3.57        7,724        4.86        45,418   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Mexico

    1,821        3.92        5,977        6.98        2,937        5.25        4,044        0.55        14,778   

Mexican Government and other government agencies debt securities

    1,220        3.48        5,353        7.07        2,222        5.36        3,678        0.15        12,473   

Other debt securities

    601        4.79        624        6.21        715        4.95        366        2.34        2,306   

United States

    530        2.13        3,506        2.37        6,693        1.53        719        3.66        11,448   

U.S. Treasury and other government agencies debt securities

    356        1.32        132        1.36        1,163        1.51        —          —          1,651   

States and political subdivisions debt securities

    14        2.51        1,163        1.93        1,976        1.01        289        1.74        3,442   

Other debt securities

    160        4.01        2,211        2.67        3,554        1.84        430        5.02        6,355   

Other countries

    7,540        4.44        9,411        4.41        5,185        3.80        3,946        4.28        26,082   

Securities of other foreign governments (2)

    3,021        0.37        4,161        3.87        1,652        3.02        2,274        3.93        11,109   

Other debt securities of other countries

    4,519        9.49        5,250        5.17        3,532        4.43        1,672        5.17        14,973   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total International

    9,891        4.21        18,894        4.87        14,814        3.05        8,709        2.44        52,308   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL AVAILABLE FOR SALE

    14,202        3.48        38,616        3.89        28,475        3.31        16,434        3.52        97,727   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

HELD TO MATURITY PORTFOLIO

             

Domestic

             

Spanish government

    —          —          —          —          —          —          —          —          —     

Other debt securities

    —          —          —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Domestic

    —          —          —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total International

    —          —          —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL HELD TO MATURITY

    —          —          —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL DEBT SECURITIES

    14,202        3.48        38,616        3.89        28,475        3.31        16,434        3.52        97,727   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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.

 

21


Table of Contents

Loans and Advances to Credit Institutions

As of June 30, 2015, our total loans and advances to credit institutions amounted to €27,875 million, or 4.2% of total assets. Net of our valuation adjustments, loans and advances to credit institutions amounted to €27,929 million as of June 30, 2015, or 4.2% of our total assets.

Loans and Advances to Customers

As of June 30, 2015, our total loans and advances amounted to €377,057 million, or 56.3% of total assets. Net of our valuation adjustments, loans and advances amounted to €361,091 million as of June 30, 2015, or 54.0% of our total assets. As of June 30, 2015, our loans and advances in Spain amounted to €200,202 million. Our foreign loans and advances amounted to €176,855 million as of June 30, 2015. For a discussion of certain mandatory ratios relating to our loan portfolio, see “Item 4. Information on the Company—Business Overview—Supervision and Regulation—Capital Requirements” 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, 2014 (the “2014 20-F”).

Loans by Geographic Area

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

 

     As of June 30,
2015
    As of December 31,
2014
    As of June 30,
2014
 
     (In Millions of Euros)  

Domestic

     200,202        178,735        186,172   

Foreign

      

Western Europe

     17,782        18,274        17,655   

Latin America

     99,160        102,678        91,764   

United States

     56,145        47,635        40,952   

Other

     3,768        3,501        3,373   

Total foreign

     176,855        172,088        153,744   
  

 

 

   

 

 

   

 

 

 

Total loans and advances

     377,057        350,822        339,916   

Valuation adjustments

     (15,966     (12,166     (12,677
  

 

 

   

 

 

   

 

 

 

Total net lending

     361,091        338,657        327,239   
  

 

 

   

 

 

   

 

 

 

Loans by Type of Customer

The following table shows, by domicile and type of customer, our net loans and advances (excluding provisions) at each of the dates indicated. The classification by type of customer is based principally on regulatory authority requirements in each country.

 

22


Table of Contents
     As of June 30,
2015
    As of December 31,
2014
    As of June 30,
2014
 
     (In Millions of Euros)  

Domestic

      

Government

     24,911        23,421        23,802   

Agriculture

     1,023        1,221        1,256   

Industrial

     14,745        13,507        12,859   

Real estate and construction

     19,479        20,171        23,827   

Commercial and financial

     12,913        18,440        19,381   

Loans to individuals (1)

     108,195        86,362        90,649   

Other

     17,985        15,238        15,774   
  

 

 

   

 

 

   

 

 

 

Total Domestic

     199,251        178,360        187,548   
  

 

 

   

 

 

   

 

 

 

Foreign

      

Government

     14,861        13,691        10,895   

Agriculture

     2,702        3,127        3,525   

Industrial

     26,087        24,072        14,572   

Real estate and construction

     15,372        12,982        16,047   

Commercial and financial

     22,119        25,440        36,017   

Loans to individuals

     72,022        72,223        56,995   

Other

     26,389        23,004        16,332   
  

 

 

   

 

 

   

 

 

 

Total Foreign

     179,554        174,541        154,383   
  

 

 

   

 

 

   

 

 

 

Total Loans and Advances

     378,803        352,901        341,931   
  

 

 

   

 

 

   

 

 

 

Valuation adjustments

     (17,712     (14,244     (14,692
  

 

 

   

 

 

   

 

 

 

Total net lending

     361,091        338,657        327,239   
  

 

 

   

 

 

   

 

 

 

 

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

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,
2015
     As of December 31,
2014
     As of June 30,
2014
 
     (In Millions of Euros)  

In euros

     199,587         182,852         189,196   

In other currencies

     161,505         155,805         138,043   
  

 

 

    

 

 

    

 

 

 

Total net lending

     361,091         338,657         327,239   
  

 

 

    

 

 

    

 

 

 

As of June 30, 2015, loans by BBVA and its subsidiaries to associates and jointly controlled companies amounted to €654 million, compared to €1,145 million as of December 31, 2014. Loans outstanding to the Spanish government and its agencies amounted to €24,911 million, or 6.6% of our total loans and advances as of June 30, 2015, compared to €23,421 million, or 6.6% of our total loans and advances as of December 31, 2014. 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.

 

23


Table of Contents

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, 2015, excluding government-related loans, amounted to €22,106 million or approximately 5.9% of our total outstanding loans and advances. As of June 30, 2015, no concentration of loans exceeding 10% of our total outstanding loans and advances existed, other than by category as disclosed in the table above.

Maturity and Interest Sensitivity

The following table shows the maturity of our total loans and advances by domicile of the office that issued the loan and the type of customer as of June 30, 2015. 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

     12,328         8,315         4,268         24,911   

Agriculture

     474         376         173         1,023   

Industrial

     10,694         2,470         1,581         14,745   

Real estate and construction

     11,299         3,539         4,642         19,479   

Commercial and financial

     6,434         2,795         3,683         12,913   

Loans to individuals

     15,449         19,513         73,233         108,195   

Other

     9,579         4,572         3,834         17,985   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Domestic

     66,256         41,580         91,414         199,250   
  

 

 

    

 

 

    

 

 

    

 

 

 

Foreign

           

Government

     2,016         1,670         11,175         14,861   

Agriculture

     1,411         819         473         2,702   

Industrial

     9,931         11,612         4,544         26,087   

Real estate and construction

     3,987         8,215         3,170         15,372   

Commercial and financial

     13,543         6,135         2,441         22,119   

Loans to individuals

     12,232         15,015         44,775         72,022   

Other

     8,775         11,159         6,456         26,389   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Foreign

     51,894         54,624         73,034         179,553   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Loans and Advances (1)

     118,151         96,204         164,448         378,803   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Gross of provisions

 

24


Table of Contents

The following table sets forth a breakdown of our fixed and variable rate loans which had a maturity of one year or more as of June 30, 2015.

 

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

Fixed rate

     16,108         63,299         79,407   

Variable rate

     116,886         64,359         181,245   
  

 

 

    

 

 

    

 

 

 

Total Loans and Advances

     132,994         127,658         260,652   
  

 

 

    

 

 

    

 

 

 

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” in the 2014 20-F and Note 2.2.1 to the Interim Consolidated Financial Statements.

The following table provides information, by domicile of customer, regarding our loan loss reserve and movements of loan charge-offs and recoveries 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,
 
     2015     2014     2014  
     (In Millions of Euros, Except Percentages)  

Loan loss reserve at beginning of period:

      

Domestic

     9,835        10,514        10,514   

Foreign

     4,443        4,481        4,481   
  

 

 

   

 

 

   

 

 

 

Total loan loss reserve at beginning of period

     14,277        14,995        14,995   

Loans charged off:

      

Total domestic (1)

     (1,286     (2,628     (1,201

Total foreign (2)

     (996     (1,836     (915
  

 

 

   

 

 

   

 

 

 

Total Loans charged off:

     (2,282     (4,464     (2,117

Provision for possible loan losses:

      

Domestic

     1,061        2,308        1,118   

Foreign

     1,285        2,439        1,178   
  

 

 

   

 

 

   

 

 

 

Total Provision for possible loan losses

     2,347        4,747        2,295   

Acquisition and disposition of subsidiaries

     —          —          —     

Effect of foreign currency translation

     (274     (119     (95

Other

     (482     (880     (353
  

 

 

   

 

 

   

 

 

 

Loan loss reserve at end of period:

      

Domestic

     12,079        9,835        10,232   

Foreign

     5,662        4,443        4,494   
  

 

 

   

 

 

   

 

 

 

Total Loan loss reserve at end of period

     17,741        14,277        14,726   
  

 

 

   

 

 

   

 

 

 

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

     4.44     3.83     4.10

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

     0.57     1.20     0.59

 

(1) Domestic loans charged off in the six months ended June 30, 2015 were mainly related to the real estate sector. Domestic loans charged off in 2014 were mainly related to the real estate sector.
(2) Foreign loans charged off in the six months ended June 30, 2015 include €972 million related to real estate loans and loans to individuals and others and €24 million related to commercial and financial loans. Loans charged off in 2014 include €1,806 million related to real estate loans and loans to individuals and others and €30 million related to commercial and financial loans.

 

25


Table of Contents

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

The loans charged off amounted to €2,282 million during the six months ended June 30, 2015 compared to €2,117 million during the six months ended June 30, 2014.

Our loan loss reserves as a percentage of total loans and advances increased to 4.4% as of June 30, 2015 from 3.8% as of December 31, 2014.

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 ensure (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, 2015 and 2014 was €117.6 million and €115.8 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,  
     2015     2014  
     (In Millions of Euros, Except Percentages)  

Impaired loans

    

Domestic

     21,109        18,563   

Public sector

     272        172   

Other resident sector

     20,837        18,391   

Foreign

     4,215        4,167   

Public sector

     18        8   

Other non-resident sector

     4,198        4,159   

Total impaired loans

     25,325        22,730   

Total loan loss reserve

     (17,741     (14,277

Impaired loans net of reserves

     7,584        8,453   

Impaired loans as a percentage of total loans and receivables (net)

     6.33     6.10

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

     1.90     2.27

 

26


Table of Contents

Our total impaired loans amounted to €25,325 million as of June 30, 2015, an 11.4% increase compared to €22,730 million as of December 31, 2014. This increase is mainly attributable to the increase in impaired loans in the “Other resident sector” as a result of the acquisition of Catalunya Banc in April 2015 in Spain.

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 incurred but not reported losses. As of June 30, 2015, the loan loss reserve amounted to €17,741 million, a 24.3% increase compared to €14,277 million as of December 31, 2014. This increase in our loan loss reserve is mainly due to the acquisition of Catalunya Banc in April 2015 in Spain.

 

27


Table of Contents

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, 2015.

 

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

Domestic:

       

Government

     272         (34     1.09

Credit institutions

     —           —          —     

Other sectors

     20,837         (10,525     11.95

Agriculture

     132         (67     12.87

Industrial

     1,716         (922     11.64

Real estate and construction

     8,675         (4,938     44.53

Commercial and other financial

     1,359         (650     10.53

Loans to individuals

     6,817         (2,625     6.30

Other

     2,139         (1,322     11.89
  

 

 

    

 

 

   

Total Domestic

     21,109         (10,559     10.59
  

 

 

    

 

 

   

Foreign:

       

Government

     18         (7     0.12

Credit institutions

     25         (21     0.10

Other sectors

     4,173         (1,961     2.53

Agriculture

     81         (28     3.00

Industrial

     257         (144     0.99

Real estate and construction

     549         (269     3.57

Commercial and other financial

     472         (205     2.13

Loans to individuals

     2,298         (1,034     3.19

Other

     515         (282     1.95
  

 

 

    

 

 

   

Total Foreign

     4,215         (1,989     2.35
  

 

 

    

 

 

   

General reserve

     —           (5,192  
  

 

 

    

 

 

   

Total impaired loans

     25,325         (17,741     6.69
  

 

 

    

 

 

   

Troubled Debt Restructurings

As of June 30, 2015, “troubled debt restructurings”, as described in Note 7 and Annex VIII to our Interim Consolidated Financial Statements, totaling €10,095 million were not considered impaired loans. For additional information on our restructured or renegotiated loans, see Note 7 and Annex VIII 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 ratio trends, categorized by products/clients and geographical locations. This analysis is focused on the identification of portfolios with non-performing asset ratio higher than our average non-performing asset ratio. 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.

 

28


Table of Contents

The non-performing asset ratio in our domestic real estate and construction portfolio was 44.5% as of June 30, 2015 (compared to 44.8% as of December 31, 2014), substantially higher than the average non-performing asset ratio for all of our domestic activities (10.6%) and the average non-performing asset ratio for all of our consolidated activities (6.1%) 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 47.6% as of such date (compared to 49.7% as of December 31, 2014). 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 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, 2015:

 

     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

     7,213         4,212         1.8

Special monitoring loans

     999         321         0.2

Of which:

        

Troubled debt restructurings

     753         230         0.2

 

(1) Potential problem loans outside of Real Estate Activity in Spain as of June 30, 2015 were not significant.

Foreign Country Outstandings

The following table sets forth, as 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, 2015 and December 31, 2014, no country’s cross-border outstanding 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, 2015     As of December 31, 2014  
     Amount      % of total
assets
    Amount      % of total
assets
 
     (In Millions of Euros, Except %)  

United Kingdom

     5,857         0.9     5,816         0.9

Mexico

     1,732         0.3     1,606         0.3

Other OECD

     7,068         1.1     6,162         1.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Total OECD

     14,657         2.2     13,584         2.1

Central and South America

     3,208         0.5     2,850         0.4

Other

     7,680         1.1     4,773         0.7
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

     25,545         3.8     21,207         3.3
  

 

 

    

 

 

   

 

 

    

 

 

 

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.

 

29


Table of Contents

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, 2015:

 

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 €138 million and €192 million as of June 30, 2015 and December 31, 2014, respectively. These figures do not reflect loan loss reserves of 18.8% and 16.7% respectively, of the relevant amounts outstanding at such dates. Deposits with or loans to borrowers in all such countries as of June 30, 2015 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, 2015 and December 31, 2014 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, 2015 and December 31, 2014 amounted to $109 million and $118 million, respectively (approximately €97 million as of each such respective date, based on a euro/dollar exchange rate on June 30, 2015 of $1.00= €0.89 and on December 31, 2014 of $1.00 = €0.82).

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.

 

     As of June 30, 2015  
     Customer
Deposits
     Bank of Spain
and Other
Central Banks
     Credit
Institutions
     Total  
     (In Millions of Euros)  

Total Domestic

     166,678         25,710         9,824         202,212   

Foreign

           

Western Europe

     30,012         102         27,520         57,634   

Mexico

     51,364         7,069         1,907         60,340   

Latin America

     45,016         1,974         4,201         51,191   

United States

     56,214         —           8,181         64,395   

Other

     2,070         1,341         2,705         6,116   

Total Foreign

     184,676         10,485         44,514         239,675   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     351,354         36,195         54,338         441,887   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

30


Table of Contents
     As of December 31, 2014  
     Customer
Deposits
     Bank of Spain
and Other
Central Banks
     Credit
Institutions
     Total  
     (In Millions of Euros)  

Total Domestic

     143,694         17,576         10,273         171,543   

Foreign

           

Western Europe

     18,187         101         39,056         57,344   

Mexico

     46,678         8,599         3,065         58,342   

Latin America

     57,992         1,093         4,638         63,723   

United States

     50,902         —           6,411         57,313   

Other

     1,607         824         1,725         4,156   

Total Foreign

     175,366         10,617         54,895         240,878   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     319,060         28,193         65,168         412,421   
  

 

 

    

 

 

    

 

 

    

 

 

 

For an analysis of our deposits, including non-interest bearing demand deposits, interest-bearing demand deposits, saving deposits and time deposits, see Note 21 to the Interim Consolidated Financial Statements.

As of June 30, 2015, the maturity of our time deposits (excluding interbank deposits) in denominations of $100,000 (approximately €89,654 considering the noon buying rate as of June 30, 2015) or greater was as follows:

 

     As of June 30, 2015  
     Domestic      Foreign      Total  
     (In Millions of Euros)  

3 months or under

     9,093         20,385         29,478   

Over 3 to 6 months

     5,209         7,339         12,548   

Over 6 to 12 months

     9,001         7,901         16,902   

Over 12 months

     12,524         10,256         22,779   

Total

     35,827         45,880         81,707   

Time deposits from Spanish and foreign financial institutions amounted to €28,497 million as of June 30, 2015, substantially all of which were in excess of $100,000 (approximately €89,654 considering the noon buying rate as of June 30, 2015).

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, 2015 and December 31, 2014, see Note 21 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, 2015, December 31, 2014 and June 30, 2014.

 

31


Table of Contents
     As of and for the
Six Months Ended
June 30, 2015
    As of and for the
Year Ended
December 31, 2014
    As of and for the
Six Months Ended
June 30, 2014
 
     Amount      Average
rate
    Amount      Average
rate
    Amount      Average
rate
 
     (In Millions of Euros, Except Percentages)  

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

               

As of end of period

     40,680         0.7     48,538         0.6     44,696         0.9

Average during period

     41,708         0.6     45,702         0.9     43,143         1.0

Maximum quarter-end balance

     44,380         —          48,538         —          47,238         —     

Bank promissory notes:

               

As of end of period

     458         1.2     1,070         1.7     581         1.0

Average during period

     1,053         1.9     1,000         1.4     938         1.1

Maximum quarter-end balance

     1,667         —          1,107         —          1,107         —     

Bonds and Subordinated debt :

               

As of end of period

     11,786         3.9     15,070         3.7     14,267         3.6

Average during period

     13,436         3.1     14,791         3.0     14,227         3.5

Maximum quarter-end balance

     13,734         —          15,503         —          15,487         —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total short-term borrowings as of end of period

     52,924         1.4     64,677         1.3     59,545         1.5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Return on Equity

The following table sets out our return on equity ratios:

 

     As of June 30,
2015
    As of December 31,
2014
    As of June 30,
2014
 
     (In Percentages)  

Return on equity (1)

     9.8     5.8     5.8

Return on assets(2)

     0.8     0.5     0.5

Equity to assets ratio(3)

     8.0     7.8     7.7

 

(1) Represents profit attributable to parent company for the period as a percentage of average stockholders’ equity for the period. For June 30, 2015 and June 30, 2014 data, profit attributable to parent company is annualized by multiplying the profit attributable to parent company for the period by two.
(2) Represents profit attributable to parent company as a percentage of average total assets for the period. For June 30, 2015 and June 30, 2014 data, profit attributable to parent company is annualized by multiplying the profit attributable to parent company for the period by two.
(3) Represents average stockholders’ equity over average total assets.

 

32


Table of Contents

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

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 and investees keep their accounts in other currencies, principally Mexican pesos, U.S. dollars, Turkish liras, Argentine pesos, Chilean pesos, Colombian pesos, Venezuelan bolivars fuerte and New Peruvian soles. For example, if Latin American currencies, the U.S. dollar or the Turkish lira 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. By contrast, the appreciation of Latin American currencies, the U.S. dollar or the Turkish lira 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. Accordingly, changes in exchange rates may limit the ability of our results of operations, stated in euro, to fully show the performance in local currency terms of our subsidiaries.

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, 2015 and 2014 according to the European Central Bank (“ECB”).

 

     Average Exchange Rates      Period-End Exchange Rates  
     For the Six
Months Ended
June 30, 2015
     For the Six
Months Ended
June 30, 2014
     As of
June 30,
2015
     As of
December 31,
2014
 

Mexican peso

     16.8845         17.9756         17.5331         17.8680   

U.S. dollar

     1.1155         1.3705         1.1189         1.2141   

Argentine peso

     9.8345         10.7219         10.1617         10.3830   

Chilean peso

     693.0007         757.5758         710.2273         736.9197   

Colombian peso

     2,770.0831         2,688.17         2,890.1734         2,906.9767   

Peruvian new sol

     3.4576         3.8371         3.5527         3.6144   

Venezuelan bolivar fuerte (*)

     220.7506         14.634         220.7506         14.5692   

Turkish lira

     2.8623         2.9677         2.9953         2.8320   

 

(*) With respect to 2015, the SIMADI exchange rate has been used, as reference. With respect to 2014, the SICAD I exchange rate has been used as reference.

During the six months ended June 30, 2015, all of the above currencies appreciated against the euro in average terms, except for the Colombian peso, which remained almost stable, and the Venezuelan bolivar fuerte, which depreciated significantly. With respect to period-end exchange rates, there was a period-on-period appreciation of all of the above currencies against the euro, except for the Venezuelan bolivar fuerte and the Turkish lira. The overall effect of changes in exchange rates was negative for the period-on-period comparison of the Group’s income statement and was positive for the period-on-period comparison of the Group’s balance sheet.

Operating Environment

Our results of operations are dependent, to a large extent, on the level of demand for our products and services (primarily loans and deposits) in the countries in which we operate. Demand for our products and services in those countries is affected by interest rates and overall economic performance in terms of activity levels, employment and inflation. The demand for loans and saving products has historically correlated positively with changes in Gross Domestic Product (GDP) and employment. In addition, our results of operations are substantially dependent upon the level of our net interest income, which is the difference between interest income from interest-earning assets and interest expense on interest-bearing liabilities. Interest rates are highly sensitive to many factors beyond our control, including fiscal and monetary policies of governments and central banks, regulation of the financial sectors in the markets in which we operate, domestic and international economic and political conditions and other factors. Changes in market interest rates can affect the interest rates that we receive on our interest-earning assets differently from the rates that we pay for our interest-bearing liabilities. Furthermore, changes in market rates generally affect our interest-earning assets more quickly than our interest-bearing liabilities, which positively affects net interest income when interest rates are rising but negatively affects net interest income when interest rates are falling. All of these items may, in turn, result in changes in the net interest income we receive.

 

33


Table of Contents

The world growth slowed in the first half of 2015 to an annualized quarterly rate of around 2.6% in the second quarter of 2015 according to BBVA Research estimates, nearly 0.7 percentage points below the annual growth in 2014. This deceleration was the result of the moderation of activity in the United States and the slowdown in the bulk of the emerging economies, particularly China and South America.

Regarding the evolution of key economic areas for the Group, Eurozone GDP grew 0.5% quarter-on-quarter in the first quarter of 2015 and 0.4% in the second quarter of 2015, its best momentum since mid-2011. Spain GDP grew 1.0% and 0.9% quarter-on-quarter in the first and second quarter of 2015, respectively. The recovery of the Spanish economy has been supported both by external factors (including the stimulus measures adopted by the European Central Bank (ECB), the depreciation of the euro and the reduction in the price of oil) and domestic factors (including increased confidence in the private sector, incipient recovery of the real estate market, job creation, a less restrictive fiscal policy and improved credit conditions). As regards interest rates, the ECB repo rate remained at minimum levels while the long-term sovereign yields (taking 10-years German Bund as reference) increased slightly in response to the stabilization in inflation expectations and the lower political uncertainty related to the Greek crisis. In Spain, the sovereign risk premium registered certain fluctuations in the six months ended June 30, 2015 and ended the period at levels of 140 bps.

The Mexican economy grew 0.4% quarter-on-quarter in the first quarter of 2015 and 0.5% in the second quarter of 2015 mainly due to higher domestic demand and in spite of the negative impact of lower oil prices and the decrease in U.S. demand. The inflation remained well below 3%. The central bank left unchanged the reference interest rates (which have been stable at 3% since June 2014) in line with the Fed’s decision to delay the first hike in September. The uncertainty about the U.S. monetary policy, the deterioration in the global economic outlook due mainly to China’s slowdown and the correction in the commodity prices have increased the risk premium in emerging markets, including Mexico.

Turkey’s GDP grew by 3.8% in the first half of 2015 as a result mainly of increased domestic demand, mainly household’s consumption, which more than offset the adverse effect of lower foreign demand and the higher cost of foreign funding. The Turkish monetary authority decided to cut the reference interest rates by 100 basis points to 7.5% at the beginning of the year to promote the economic recovery, keeping them in that level until September. The sovereign risk premium increased in Turkey more significantly than in other emerging economies.

South America growth remained subdued in the first half of 2015 due to the combined impact of lower commodity prices, lower demand from China and less supportive global funding conditions with the expected Fed’s lift-off. The GDP of South America’s main economies (Argentina, Brazil, Chile, Colombia, Peru and Venezuela) fell 0.3% year-on-year in the second quarter 2015 according to BBVA Research estimates (first quarter of 2015: -0.1% year-on-year). The need to contain inflation pressures derived from currency depreciations resulted in interest rates hikes in economies such as Brazil or Peru. Other countries, with less pressing problems, continued to follow the Fed’s strategy, keeping the reference interest rates stable. South America countries generally experienced a deterioration in the risk premium which was particularly intense in Brazil and Colombia.

U.S. GDP began 2015 with a substantial slowdown, with a positive growth of 0.2% quarter-on-quarter in the first quarter. The unusually harsh weather conditions accounted for a portion of the slowdown. In the second quarter, growth rebounded to 0.9% quarter-on-quarter. The impact of lower oil prices on energy sector investment and the early effects of the U.S. dollar appreciation on exports have hindered growth evolution in the recent quarters. However, the labor market continued to improve, with employment gains estimated to be between the range 1.5%-2.0% since October 2014 to August 2015, which helped support household disposable income and private consumption during a period of low energy prices, a steady improvement in nominal wages and easing monetary conditions. Official interest rates continued anchored to 0%, explaining, in part, the stability of the long term interest rates at levels close to 2.2% (considering the 10-years sovereign yield).

 

34


Table of Contents

BBVA Group Results of Operations for the Six Months Ended June 30, 2015 Compared to the Six Months Ended June 30, 2014

The table below shows the Group’s consolidated income statements for the six months ended June 30, 2015 and June 30, 2014.

 

    

For the Six

Months Ended

June 30,

       
     2015     2014     Change  
     (In Millions of Euros)     (In %)  

Interest and similar income

     10,665        11,000        (3.0

Interest expense and similar charges

     (3,570     (4,276     (16.5
  

 

 

   

 

 

   

Net interest income

     7,095        6,724        5.5   
  

 

 

   

 

 

   

Dividend income

     236        370        (36.2

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

     195        155        25.8   

Fee and commission income

     2,801        2,617        7.0   

Fee and commission expenses

     (682     (625     9.1   

Net gains (losses) on financial assets and liabilities

     826        978        (15.5

Net exchange differences

     620        173        258.4   

Other operating income

     2,271        2,242        1.3   

Other operating expenses

     (2,144     (2,552     (16.0

Gross income

     11,219        10,082        11.3   

Administration costs

     (4,927     (4,542     8.5   

Personnel expenses

     (2,888     (2,638     9.5   

General and administrative expenses

     (2,039     (1,905     7.0   

Depreciation and amortization

     (572     (548     4.4   

Net operating income

     5,720        4,992        14.6   

Provisions (net)

     (392     (433     (9.5

Impairment losses on financial assets (net)

     (2,137     (2,126     0.5   

Impairment losses on other assets (net)

     (128     (98     30.6   

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

     23        14        64.3   

Negative goodwill

     22        —          n.m. (1) 

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

     791        (281     n.m. (1) 
  

 

 

   

 

 

   

Operating profit before tax

     3,899        2,067        88.6   
  

 

 

   

 

 

   

Income tax

     (941     (524     79.6   
  

 

 

   

 

 

   

Profit from continuing operations

     2,958        1,544        91.7   
  

 

 

   

 

 

   

Profit from discontinued operations (net)

     —          —          0.0   
  

 

 

   

 

 

   

Profit

     2,958        1,544        91.7   
  

 

 

   

 

 

   

Profit attributable to parent company

     2,759        1,328        107.8   

Profit attributable to non-controlling interests

     200        215        (7.0
  

 

 

   

 

 

   

 

(1) Not meaningful.

Net interest income

The following table summarizes the principal components of net interest income for the six months ended June 30, 2015 and June 30, 2014.

 

    

For the Six

Months Ended

June 30,

       
     2015     2014     Change  
     (In Millions of Euros)     (In %)  

Interest and similar income

     10,665        11,000        (3.0

Interest expense and similar charges

     (3,570     (4,276     (16.5
  

 

 

   

 

 

   

Net interest income

     7,095        6,724        5.5   
  

 

 

   

 

 

   

 

35


Table of Contents

Net interest income for the six months ended June 30, 2015 amounted to €7,095 million, a 5.5% increase compared with the €6,724 million recorded for the six months ended June 30, 2014, mainly as a result of the positive performance of the global markets unit (which led to lower interest expense), the Catalunya Banc acquisition, lower costs of deposits in Spain and increased activity in the majority of the units, partially offset by the effect of the depreciation of the Venezuelan bolivar fuerte (which led to a lower contribution in euros of the net interest income generated in Venezuela).

Dividend income

Dividend income for the six months ended June 30, 2015 amounted to €236 million, a 36.2% decrease compared with the €370 million recorded for the six months ended June 30, 2014. Dividend income for the six months ended June 30, 2015 was mainly attributable to the receipt of dividends from Telefonica. Dividend income for the six months ended June 30, 2014 was mainly attributable to the receipt of dividends from China CITIC Bank Corporation Limited (“CNCB”). We sold our stake in CNCB in the six months ended June 30, 2015 (a 4.9% stake on March 12, 2015 and the remaining 1.5% stake through various transactions during the six months ended June 30, 2015, mainly in January and April).

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, 2015 amounted to €195 million, a 25.8% increase compared with the €155 million recorded for the six months ended June 30, 2014, mainly due to the higher profit from Garanti and decreased losses from Metrovacesa, a Spanish construction company in which we hold a 19.4% interest.

Fee and commission income

The breakdown of fee and commission income for the six months ended June 30, 2015 and June 30, 2014 is as follows:

 

     For the Six Months
Ended June 30,
        
     2015      2014      Change  
     (In Millions of Euros)      (In %)  

Commitment fees

     84         94         (10.6

Contingent risks

     154         148         4.1   

Letters of credit

     19         22         (13.6

Bank and other guarantees

     135         126         7.1   

Arising from exchange of foreign currencies and banknotes

     2         8         (75.0

Collection and payment services income

     1,493         1,427         4.6   

Bills receivables

     38         31         22.6   

Current accounts

     176         166         6.0   

Credit and debit cards

     937         921         1.7   

Checks

     115         101         13.9   

Transfers and others payment orders

     187         155         20.6   

Other

     40         53         (24.5

Securities services income

     626         581         7.7   

Securities underwriting

     38         41         (7.3

Securities dealing

     105         100         5.0   

Custody securities

     159         151         5.3   

Investment and pension funds

     260         226         15.0   

Other asset management

     64         63         1.6   

Counseling on and management of one-off transactions

     8         7         14.3   

Financial and similar counseling services

     55         36         52.8   

Factoring transactions

     14         18         (22.2

Non-banking financial products sales

     81         54         50.0   

Other fees and commissions

     284         244         16.4   
  

 

 

    

 

 

    

Fee and commission income

     2,801         2,617         7.0   
  

 

 

    

 

 

    

 

36


Table of Contents

Fee and commission income increased by 7.0% to €2,801 million for the six months ended June 30, 2015, from €2,617 million for the six months ended June 30, 2014, mainly as a result of increased collection and payment services income, particularly transfers, fees and commissions from credit cards in Mexico and the United States, and the greater contribution of Catalunya Banc in fees and commissions from mutual funds.

Fee and commission expenses

The breakdown of fee and commission expenses for the six months ended June 30, 2015 and June 30, 2014 is as follows:

 

     For the Six Months
Ended June 30,
        
     2015      2014      Change  
     (In Millions of Euros)      (In %)  

Brokerage fees on lending and deposit transactions

     1         —           n.m. (1) 

Fees and commissions assigned to third parties

     508         470         8.1   

Credit and debit cards

     414         398         4.0   

Transfers and others payment orders

     39         31         25.8   

Securities dealing

     1         2         (50.0

Other

     54         39         38.5   

Other fees and commissions

     173         155         11.6   
  

 

 

    

 

 

    

Fee and commission expenses

     682         625         9.1   
  

 

 

    

 

 

    

 

(1) Not meaningful.

Fee and commission expenses increased by 9.1% to €682 million for the six months ended June 30, 2015, from €625 million for the six months ended June 30, 2014, primarily due to the increased fees and commission expenses from credit and debit cards in Mexico.

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

Net gains (losses) on financial assets and liabilities decreased by 15.5% to €826 million for the six months ended June 30, 2015 from €978 million for the six months ended June 30, 2014, mainly due to a decrease in our debt securities portfolio which resulted in lower gains on financial assets. Gains on available-for-sale financial assets decreased by 12.4% to €613 million for the six months ended June 30, 2015 from €700 million for the six months ended June 30, 2014, mainly as a result of the lower volume of derivatives.

 

37


Table of Contents

The table below provides a breakdown of net gains (losses) on financial assets and liabilities for the six months ended June 30, 2015 and 2014:

 

     For the Six Months
Ended June 30,
       
     2015      2014     Change  
     (In Millions of Euros)     (In %)  

Financial assets held for trading

     161         496        (67.5

Other financial assets designated at fair value through profit or loss

     14         (14     n.m. (1) 

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

     652         496        31.5   

Available-for-sale financial assets

     613         700        (12.4

Loans and receivables

     37         8        n.m. (1) 

Other

     2         (211     n.m. (1) 
  

 

 

    

 

 

   

Net gains (losses) on financial assets and liabilities

     826         978        (15.5
  

 

 

    

 

 

   

 

(1) Not meaningful.

Net exchange differences increased from €173 million for the six months ended June 30, 2014 to €620 million for the six months ended June 30, 2015 due primarily to the evolution of foreign currencies and exchange rate management, including hedging arrangements.

Other operating income and expenses

Other operating income amounted to €2,271 million for the six months ended June 30, 2015, a 1.3% increase compared to €2,242 million for the six months ended June 30, 2014, due mainly to increased income derived from non-financial services, partially offset by lower income from insurance and reinsurance contracts.

Other operating expenses for the six months ended June 30, 2015 amounted to €2,144 million, a 16.0% decrease compared to the €2,552 million recorded for the six months ended June 30, 2014, due primarily to lower contributions to deposit guarantee funds in the countries in which the BBVA Group operates, lower adjustment for hyperinflation in Venezuela and lower expenses from insurance and reinsurance contracts, which more than offset the adverse effects of high inflation in Turkey and Argentina.

Administration costs

Administration costs for the six months ended June 30, 2015 amounted to €4,927 million, an 8.5% increase compared with the €4,542 million recorded for the six months ended June 30, 2014, mainly due to the effect of exchange rates, the high inflation in some countries, and the transformation plans the Group has undertaken in almost all of its units. These transformation plans were aimed at boosting alternative sales channels such as mobile banking and online banking.

The table below provides a breakdown of personnel expenses for the six months ended June 30, 2015 and June 30, 2014.

 

     For the Six Months
Ended June 30,
        
     2015      2014      Change  
     (In Millions of Euros)      (In %)  

Wages and salary

     2,221         1,990         11.6   

Social security costs

     348         342         1.8   

Defined contribution plan expense

     44         47         (6.4

Defined benefit plan expense

     33         30         10.0   

Other personnel expenses

     242         229         5.7   
  

 

 

    

 

 

    

Personnel expenses

     2,888         2,638         9.5   
  

 

 

    

 

 

    

 

38


Table of Contents

Wages and salary expenses increased 11.6% from €1,990 million for the six months ended June 30, 2014 to €2,221 million for the six months ended June 30, 2015, mainly as a result of the U.S. dollar appreciation.

The table below provides a breakdown of general and administrative expenses for the six months ended June 30, 2015 and June 30, 2014:

 

     For the Six Months
Ended June 30,
        
     2015      2014      Change  
     (In Millions of Euros)      (In %)  

Technology and systems

     293         275         6.5   

Communications

     122         134         (9.0

Advertising

     97         91         6.6   

Property, fixtures and materials

     464         435         6.7   

Of which:

        

Rent expenses

     271         226         19.9   

Taxes other than income tax

     203         190         6.8   

Other expenses

     860         780         10.3   
  

 

 

    

 

 

    

General and administrative expenses

     2,039         1,905         7.0   
  

 

 

    

 

 

    

Technology and systems expenses increased from €275 million for the six months ended June 30, 2014 to €293 million for the six months ended June 30, 2015, mainly due to higher investments in technology. Property, fixtures and materials expenses increased from €435 million for the six months ended June 30, 2015 to €464 million mainly as a result of higher rent expenses in Mexico and the United States. Other expenses increased from €780 million for the six months ended June 30, 2014 to €860 million for the six months ended June 30, 2015 mainly due to the increase of outsourced services in Spain.

Depreciation and amortization

Depreciation and amortization for the six months ended June 30, 2015 was €572 million, a 4.4% increase compared with the €548 million recorded for the six months ended June 30, 2014, mainly due to the amortization of software and hardware.

Provisions (net)

Provisions (net) for the six months ended June 30, 2015 was €392 million, a 9.5% decrease compared with the €433 million recorded for the six months ended June 30, 2014, as a result of a decrease in the costs related to early retirements and contributions to pension funds.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) for the six months ended June 30, 2015 was a loss of €2,137 million, a 0.5% increase compared with the €2,126 million loss recorded for the six months ended June 30, 2014 mainly due to the acquisition of Catalunya Banc in April 2015, which resulted in an increase in non-performing assets in Spain. The Group’s non-performing asset ratio was 6.1% as of June 30, 2015, compared to 5.8% as of December 31, 2014.

 

39


Table of Contents

Impairment losses on other assets (net)

Impairment losses on other assets (net) for the six months ended June 30, 2015 amounted to €128 million, a 30.6% increase compared to the €98 million recorded for the six months ended June 30, 2014, due to higher impairment losses on real estate investments and inventories.

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, 2015 amounted to a gain of €23 million, compared to a gain of €14 million recognized for the six months ended June 30, 2014, mainly as a result of gains from the sale of certain premises in Mexico in 2015.

Negative goodwill

Negative goodwill for the six months ended June 30, 2015 amounted to €22 million, compared to no negative goodwill for the six months ended June 30, 2014. Negative goodwill for the six months ended June 30, 2015 was attributable to the acquisition of Catalunya Banc in April 2015.

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, 2015 amounted to a gain of €791 million, compared to a loss of €281 million for the six months ended June 30, 2014. The gains in 2015 were mainly attributable to the sale of a 6.4% stake in CNCB while the losses in 2014 related mainly to higher provisions made in connection with foreclosed real estate assets in Spain.

Operating profit before tax

As a result of the foregoing, operating profit before tax for the six months ended June 30, 2015 was €3,899 million, an 88.6% increase from the €2,067 million recorded for the six months ended June 30, 2014.

Income tax

Income tax for the six months ended June 30, 2015 was an expense of €941 million, compared with an expense of €524 million recorded for the six months ended June 30, 2014, due mainly to the higher operating profit before tax.

Profit from continuing operations

As a result of the foregoing, profit from continuing operations for the six months ended June 30, 2015 was €2,958 million, a 91.7% increase from the €1,544 million recorded for the six months ended June 30, 2014.

Profit from discontinued operations (net)

There was no profit from discontinued operations for the six months ended June 30, 2015 or June 30, 2014.

Profit

As a result of the foregoing, profit for the six months ended June 30, 2015 was €2,958 million, a 91.7% increase from the €1,544 million recorded for the six months ended June 30, 2014.

Profit attributable to parent company

Profit attributable to parent company for the six months ended June 30, 2015 was €2,759 million, a 107.8% increase from the €1,328 million recorded for the six months ended June 30, 2014.

 

40


Table of Contents

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests for the six months ended June 30, 2015 was €200 million, a 7.0% decrease compared with the €215 million registered for the six months ended June 30, 2014, principally due to the weaker performance of our Venezuelan operations (attributable to the effect of exchange rates) where there are minority shareholders.

 

41


Table of Contents

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% (our interest in Garanti during the reported periods) 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 gains from the sale of our 6.43% participation in CNCB during the six months ended June 30, 2015.

 

42


Table of Contents
     For the Six Months Ended June 30, 2015  
     Banking
Activity
in Spain
    Real
Estate
Activity in
Spain
    Turkey     Rest of
Eurasia
    Mexico     South
America
    United
States
    Corporate
Center
    Total     Adjustments     Group
Income
 
     (In Millions of Euros)  

Net interest income

     1,982        (14     425        85        2,734        1,652        881        (225     7,521        (425     7,096   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net fees and commissions

     810        1        98        90        605        360        317        (65     2,216        (97     2,119   

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

     675        2        (22     89        109        306        117        148        1,425        21        1,446   

Other operating income and expenses (net) (*)

     244        (45     9        0        110        (22     16        80        392        166        558   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross income

     3,711        (56     510        265        3,558        2,297        1,332        (63     11,554        (335     11,219   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Administration costs

     (1,447     (57     (203     (169     (1,201     (961     (778     (311     (5,127     200        (4,927

Depreciation and amortization

     (56     (12     (19     (7     (108     (53     (104     (231     (590     18        (572
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net margin before provisions

     2,208        (125     289        89        2,248        1,283        449        (605     5,837        (117     5,720   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Impairment losses on financial assets (net)

     (775     (116     (71     (28     (852     (310     (62     5        (2,208     71        (2,137

Provisions (net) and other gains (losses)

     (280     (196     1        5        (16     (45     4        (53     (582     898        316   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit/ (loss) before tax

     1,152        (437     219        66        1,380        927        390        (652     3,046        853        3,899   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income tax

     (341     136        (44     (23     (339     (272     (104     172        (815     (126     (941
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit from continuing operations

     811        (301     174        43        1,042        655        286        (480     2,231        727        2,958   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     —          —          —          —          —          —          —          727        727        (727     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit

     811        (301     174        43        1,042        655        286        247        2,958        —          2,958   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit attributable to non-controlling interests

     (2     —          —          —          —          (181     —          (17     (201     —          (200
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit attributable to parent company

     809        (300     174        43        1,041        474        286        230        2,759        —          2,759   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*) Includes share of profit or loss of entities accounted for using the equity method.
(**) For Group Income (derived from the Group income statement) this line represents “Profit from discontinued operations” and for operating segments (presented in accordance with management criteria) it represents “Profit from corporate operations”.

 

43


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

Net interest income

     1,869        (22     314        95        2,354        2,061        693        (325     7,038        (314     6,724   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net fees and commissions

     733        1        95        96        560        391        268        (57     2,086        (94     1,992   

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

     642        —          26        95        108        246        74        (15     1,176        (25     1,151   

Other operating income and expenses (net) (*)

     140        (97     7        177        112        (335     2        62        67        148        215   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross income

     3,384        (118     442        463        3,134        2,362        1,037        (335     10,368        (286     10,082   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Administration costs

     (1,367     (64     (169     (159     (1,067     (972     (626     (286     (4,710     168        (4,542

Depreciation and amortization

     (52     (12     (17     (5     (88     (73     (87     (231     (565     17        (548
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net margin before provisions

     1,965        (193     255        298        1,980        1,317        324        (852     5,093        (101     4,992   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Impairment losses on financial assets (net)

     (859     (126     (50     (42     (750     (306     (42     (1     (2,177     51        (2,126

Provisions (net) and other gains (losses)

     (238     (341     (9     (4     (42     (54     (17     (103     (808     10        (798
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit/ (loss) before tax

     868        (661     196        253        1,188        956        266        (957     2,109        (41     2,068   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income tax

     (258     195        (41     (44     (287     (264     (70     205        (566     42        (524
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit from continuing operations

     610        (466     155        208        901        692        196        (752     1,544        0        1,544   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     —          —          —          —          —          —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit

     610        (466     155        208        901        692        196        (752     1,544        —          1,544   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit attributable to non-controlling interests

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit attributable to parent company

     608        (465     155        208        900        481        196        (755     1,328        —          1,328   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*) Includes share of profit or loss of entities accounted for using the equity method.
(**) For Group Income (derived from the Group income statement) this line represents “Profit from discontinued operations” and for operating segments (presented in accordance with management criteria) it represents “Profit from corporate operations”. For the six months ended June 30, 2014, this Income Statement line has no balance.

 

44


Table of Contents

Results of Operations by Operating Segment for the Six Months Ended June 30, 2015 Compared to the Six Months Ended June 30, 2014

BANKING ACTIVITY IN SPAIN

 

     For the Six
Months
Ended June 30,
       
     2015     2014     Change  
     (In Millions of Euros)     (In %)  

Net interest income

     1,982        1,869        6.1   
  

 

 

   

 

 

   

Net fees and commissions

     810        733        10.5   

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

     675        642        5.0   

Other operating income and expenses (net)

     244        140        74.2   
  

 

 

   

 

 

   

Gross income

     3,711        3,384        9.7   
  

 

 

   

 

 

   

Administration costs

     (1,447     (1,367     5.9   

Depreciation and amortization

     (56     (52     6.9   
  

 

 

   

 

 

   

Net margin before provisions

     2,208        1,965        12.4   
  

 

 

   

 

 

   

Impairment losses on financial assets (net)

     (775     (859     (9.7

Provisions (net) and other gains (losses)

     (280     (238     17.6   
  

 

 

   

 

 

   

Operating profit/(loss) before tax

     1,152        868        32.8   
  

 

 

   

 

 

   

Income tax

     (341     (258     32.3   
  

 

 

   

 

 

   

Profit from continuing operations

     811        610        33.0   
  

 

 

   

 

 

   

Profit from corporate operations (net)

     —          —          —     
  

 

 

   

 

 

   

Profit

     811        610        33.0   
  

 

 

   

 

 

   

Profit attributable to non-controlling interests

     (2     (2     9.0   
  

 

 

   

 

 

   

Profit attributable to parent company

     809        608        33.1   
  

 

 

   

 

 

   

 

(1) Not meaningful.

The period-on-period comparison has been affected by the acquisition of Catalunya Banc in April 2015.

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2015 was €1,982 million, a 6.1% increase compared with the €1,869 million recorded for the six months ended June 30, 2014, mainly as a result of lower deposits costs due to a decrease in the average interest rate payable on deposits and the acquisition of Catalunya Banc, which contributed lending activity with higher margins.

Net fees and commissions

Net fees and commissions of this operating segment for the six months ended June 30, 2015 amounted to €810 million, a 10.5% increase compared with the €733 million recorded for the six months ended June 30, 2014, primarily due to the acquisition of Catalunya Banc and the greater contribution from fees and commissions from mutual funds.

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, 2015 was a gain of €675 million compared with the €642 million gain recorded for the six months ended June 30, 2014, as a result of positive exchange rate differences.

 

45


Table of Contents

Other operating income and expenses (net)

Other operating income and expenses (net) of this operating segment for the six months ended June 30, 2015 was a gain of €244 million, compared with the €140 million gain recorded for the six months ended June 30, 2014, mainly as a result of lower contributions to the Deposit Guarantee Fund, which more than offset the integration costs incurred in connection with the acquisition of Catalunya Banc.

Administration costs

Administration costs of this operating segment for the six months ended June 30, 2015 were €1,447 million, a 5.9% increase compared with the €1,367 million recorded for the six months ended June 30, 2014, mainly as a result of the acquisition of Catalunya Banc.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) of this operating segment for the six months ended June 30, 2015 was €775 million, a 9.7% decrease from the €859 million recorded for the six months ended June 30, 2014, which is mainly attributable to the improvement of credit quality and the lower deterioration of collateral value of the loan portfolio.

Provisions (net) and other gains (losses)

Provisions (net) and other gains (losses) of this operating segment for the six months ended June 30, 2015 were a loss of €280 million, compared with the €238 million loss recorded for the six months ended June 30, 2014, mainly due to the increase in provisions for early retirements.

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, 2015 was €1,152 million, compared with an operating profit before tax of €868 million recorded for the six months ended June 30, 2014.

Income tax

Income tax of this operating segment for the six months ended June 30, 2015 was an expense of €341 million, compared with a €258 million expense recorded for the six months ended June 30, 2014, primarily as a result of the higher operating profit before tax.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the six months ended June 30, 2015 was €809 million, a 33.1% increase from the €608 million recorded for the six months ended June 30, 2014.

REAL ESTATE ACTIVITY IN SPAIN

 

     For the Six Months
Ended June 30,
       
     2015     2014     Change  
     (In Millions of Euros)     (In %)  

Net interest income

     (14     (22     (35.1
  

 

 

   

 

 

   

Net fees and commissions

     1        1        47.8   

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

     2        —          n.m. (1) 

Other operating income and expenses (net)

     (45     (97     (53.9
  

 

 

   

 

 

   

Gross income

     (56     (118     (52.6
  

 

 

   

 

 

   

Administration costs

     (57     (64     (10.1

Depreciation and amortization

     (12     (12     2.5   
  

 

 

   

 

 

   

Net margin before provisions

     (125     (193     (35.3
  

 

 

   

 

 

   

Impairment losses on financial assets (net)

     (116     (126     (8.1

Provisions (net) and other gains (losses)

     (196     (341     (42.5
  

 

 

   

 

 

   

Operating profit/(loss) before tax

     (437     (661     (33.9
  

 

 

   

 

 

   

Income tax

     136        195        (30.0
  

 

 

   

 

 

   

Profit/(loss) from continuing operations

     (301     (466     (35.5
  

 

 

   

 

 

   

Profit from corporate operations (net)

     —          —          n.m. (1) 
  

 

 

   

 

 

   

Profit/(loss)

     (301     (466     (35.5
  

 

 

   

 

 

   

Profit attributable to non-controlling interests

     —          1        (68.1
  

 

 

   

 

 

   

Profit/(loss) attributable to parent company

     (300     (465     (35.4
  

 

 

   

 

 

   

 

(1) Not meaningful.

 

46


Table of Contents

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2015 was a €14 million loss, compared with the €22 million loss recorded for the six months ended June 30, 2014.

Net fees and commissions

Net fees and commissions of this operating segment for the six months ended June 30, 2015 amounted to €1 million, a 47.8% increase compared with the €1 million recorded for the six months ended June 30, 2014.

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, 2015 amounted to a gain of €2 million, compared with no loss or gain recorded for the six months ended June 30, 2014.

Other operating income and expenses (net)

Other operating income and expenses (net) of this operating segment for the six months ended June 30, 2015 was an expense of €45 million, a 53.9% decrease compared with the €97 million expense recorded for the six months ended June 30, 2014, mainly as a result of lower costs related to the administration and sale of properties.

Administration costs

Administration costs of this operating segment for the six months ended June 30, 2015 were €57 million, a 10.1% decrease compared with the €64 million recorded for the six months ended June 30, 2014, primarily due to decreased personnel expenses.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) of this operating segment for the six months ended June 30, 2015 was €116 million, an 8.1% decrease compared with the €126 million recorded for the six months ended June 30, 2014, mainly attributable to lower losses in real estate asset collateral.

Provisions (net) and other gains (losses)

Provisions (net) and other losses of this operating segment for the six months ended June 30, 2015 were €196 million, a 42.5% decrease compared with the €341 million recorded for the six months ended June 30, 2014, as a result of the sale of properties combined with lower impairment of real estate assets.

 

47


Table of Contents

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, 2015 was €437 million, a 33.9% decrease compared with the €661 million loss recorded for the six months ended June 30, 2014.

Income tax

Income tax of this operating segment for the six months ended June 30, 2015 amounted to a benefit of €136 million, a 30.0% decrease compared with the €195 million benefit recorded for the six months ended June 30, 2014, primarily as a result of the lower operating loss before tax. Tax benefit was recorded in light of the operating loss before tax recorded during the period.

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, 2015 was €300 million, a 35.4% decrease compared with the €465 million loss recorded for the six months ended June 30, 2014.

TURKEY

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

 

     For the Six Months
Ended June 30,
       
     2015     2014     Change  
     (In Millions of Euros)     (In %)  

Net interest income

     425        314        35.5