financial statements 2013

United States

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Industry Trends

The most recent activity data confirm the recovery of the United States economy. GDP has grown around 1% in the third quarter and the latest available figures show that the expansion continued along this line in the fourth quarter. Worth noting is the strong increase in consumption and investment in housing, while the labor market maintains a moderate improvement in job creation and a gradual decline in the unemployment rate. Against this background, the Fed has confirmed that it will reduce the expansive intensity of its monetary policy (tapering) in early 2014. Lastly, on the fiscal front, the political parties have reached an agreement to reduce the drain expected for 2014 and the chances of a new shutdown of the federal administration.

The improvement of the country's banking system seen throughout the year continued in the last quarter, with positive performance in the sector's earnings and NPA ratio. Expectations are for a strengthening of the credit market, with an increase in consumer loans and commercial lending. As for asset quality, the NPA ratio had declined to 3.8% at the close of September for commercial banks, compared with the 4.7% figure posted at the end of 2012. On the liabilities side, the rate of growth of deposits has been moderate, after the strong increase registered in the second half of 2012, but there has been strong growth of domestic deposits in the second half of the year. The improvement in bank earnings continues to be underpinned by higher non-financial revenue (low interest rates continue to have a negative effect on net interest income) and lower provisioning needs due to the improvement of asset quality across all the portfolios.

With respect to exchange rates, the dollar has continued to depreciate against the euro in the last quarter, which has had a negative impact on the changes in the Group's financial statements, both in the quarter and over the year.

Activity and Earnings

The year-on-year comparison of this area’s financial statements is affected by the depreciation of the U.S. dollar against the euro, which generated a negative impact on activity and on the income statement. Therefore, the analysis of the changes in some figures includes a reference to the percentage change at constant exchange rates.

The area's earnings in 2013 have been strongly influenced by the impact of the current environment of low interest rates on revenue, the control of operating expenses and the increase in loan-loss provisions, very much in line with the upward trend in activity.

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The United States Millions of Euros
2013 2012 % Change
NET INTEREST INCOME 1,407 1,551 (9.3)
Net fees and commissions 557 581 (4.0)
Net gains (losses) on financial assets and liabilities and net exchange differences 139 153 (8.6)
Other operating income and expenses (3) (41) (93.9)
GROSS INCOME 2,101 2,243 (6.3)
Operating expenses (1,475) (1,506) (2.1)
Administration costs (1,296) (1,321) (1.9)
Personnel expenses (812) (840) (3.4)
General and administrative expenses (484) (481) 0.7
Depreciation and amortization (179) (185) (3.0)
OPERATING INCOME 627 737 (15.0)
Impairment losses on financial assets (net) (78) (72) 8.7
Provisions (net) and other gains (losses) (14) (46) (69.1)
Income tax (144) (177) (18.5)
Profit from discontinued transactions (net) - - n.m.
PROFIT 390 442 (11.8)
Profit attributable to non-controlling interests - - -

The changes in the main headings of the income statement of this business area are:

“Net interest income” at the close of 2013 stood at €1,407 million, a decrease of 9.3% (6.3% at constant exchange rates) on the €1,551 million registered in 2012. As noted above, this decline has been strongly affected by the scenario of low interest rates, which has overshadowed the positive effect of improved activity over the year. However, this trend has started to reverse and in the last quarter of 2013 net interest income had already improved by 2.1%, at constant exchange rates, on the previous quarter.

The balance under the heading “Net fees and commissions” is down 4.0% to €557 million as of December 31, 2013, compared with €581 million at the close of 2012. However, at constant interest rates it remained practically unchanged, with a slight decline of 0.8%. Its performance has been strongly influenced by regulatory changes and the sale of the insurance business in 2012, which have had a negative impact.

“Net gains (losses) on financial assets and liabilities” and “Exchange differences (net)” totaled €139 million in 2013, down 8.6% on the €153 million posted at the close of 2012.

“Other operating income and expenses” registered a negative €3 million in 2013, compared with losses of €41 million in 2012, due mainly to an exceptionally high contribution to the Federal Deposit Insurance Corporation (FDIC) in the first half of that year.

As a result, “Gross income” stood at €2,101 million as of December 31, 2013, down 6.3% on the €2,243 million registered in 2012. At constant exchange rates, the decline is 3.1%.

The area continues to manage its "Operating expenses" efficiently, by applying a strict cost control policy. The balance under this heading is €1,475 million in 2013, down 2.1% on the €1,506 million posted the previous year. However, at constant exchange rates the figure has increased by 1.3%.

Thus, “Operating income” for 2013 is €627 million, with a decrease of 15.0% (12.1% at constant exchange rates) compared with the €737 million posted in 2012.

“Impairment losses on financial assets (net)” stood at €78 million as of December 31, 2013, which represents an 8.7% increase in provisions compared with the €72 million registered at the close of 2012. At constant exchange rates, the increase has been 12.7% and is due mainly to the absence of recoveries and relevant items (unlike in 2012). Excluding these effects, the rate of growth of this heading is in line with the growth in activity. The accumulated risk premium at the close of 2013 stood at 0.21%, compared with 0.19% in 2012.

The balance under the headings “Provisions (net)” and “Other gains (losses)” at the close of 2013 totaled €14 million, which represents a significant reduction on the €46 million registered in 2012, a year when greater provisions for guarantees and letters of credit had been registered.

As a result of the above, “Income before tax” as of December 31, 2013 amounted to €534 million, compared with €619 million in 2012, a decrease of 13.7% (10.8% at constant exchange rates).

The balance of “Income tax” in 2013 is €144 million in income, compared with income of €177 million in 2012.

As a result, the area generated “Net income attributed to parent company” of €390 million as of December 31, 2013, a decline of 11.8% (8.8% at constant exchange rates) compared with the €443 million posted in 2012.

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The United States Millions of Euros
2013 2012 % Variación
Total Assets 53,042 53,892 (1.6)
Loans and advances to customers 38,067 36,892 3.2
Customer deposits under management (*) 38,448 37,721 1.9
Economic capital allocated 2,488 2,638 (5.7)
Efficiency ratio (%) 70.2 67.1
NPA Ratio (%) 1.2 2.4
NPA Coverage Ratio (%) 138 90
Risk premium (%) 0.21 0.19
(*) Does not include repurchase agreements.

The area's activity continued to improve throughout 2013, with a very favorable performance in the last quarter of the year across all loan portfolios and in lower-cost customer funds, such as current and savings accounts.

As of December 31, 2013, loans and advances to customers (gross) stood at €38,067 million, up 3.2% on the €36,892 million as of December 31, 2012. This increase has been widespread across all of the Bank's portfolios. At constant exchange rates, commercial lending grew by 14.7% since the end of 2012 and residential real estate loans are up 10.1%. There has also been an increase in consumer loans (up 5.9% in 2013), as well as a recovery in the construction real estate portfolio in the last quarter, although the latter declined 4.6% on the figure for December 2012.

At the close of 2013, customer deposits totaled €38,448 million, an increase of 1.9% on the €37,721 million as of December 31, 2012. At constant exchange rates, the increase is 6.5%. This positive trend is due to the favorable performance of lower-cost deposits, mainly current and savings accounts, which at constant exchange rates registered an increase of 7.2% over the year. In contrast, time deposits decreased by 7.4% (3.2% at constant exchange rates).