financial statements 2012

3. Summarized consolidated income statements

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The Group’s summarized consolidated income statements for 2012 and 2011 are given below. Because of the agreements for the sale of the pension business in Latin America (mentioned above), earnings from this activity are classified under discontinued operations in the income statements for 2012 and also for 2011, for comparison purposes.

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BBVA Group Interim Consolidated Income Statements Millions of Euros
2012 2011 % Change
NET INTEREST INCOME 15,122 13,152 15.0
Dividend income 390 562 (30.6)
Share of profit or loss of entities accounted for using the equity method 727 595 22.1
Net fees and commissions 4,353 4,031 8.0
Net gains (losses) on financial assets and liabilities and net exchange differences 1,767 1,481 19.3
Other operating income and expenses 82 206 (60.3)
GROSS INCOME 22,441 20,028 12.1
Operating expenses (10,786) (9,737) 10.8
Administration costs (9,768) (8,898) 9.8
Depreciation and amortization (1,018) (839) 21.4
OPERATING INCOME 11,655 10,290 13.3
Impairment losses on financial assets (net) (7,980) (4,226) 88.8
Provisions (net) (651) (508) 28.2
NET OPERATING INCOME 3,024 5,556 (45.6)
Other gains (losses) (1,365) (2,110) (35.3)
INCOME BEFORE TAX 1,659 3,446 (51.9)
Income tax 276 (206) n.s.
Income from discontinued transactions (net) 393 246 59.8
NET INCOME 2,327 3,485 (33.2)
Net income attributed to non-controlling interests (651) (481) 35.3

The explanations of the changes in the main headings of the summarized consolidated income statements are as follows:

"Net interest income" in 2012 stood at €15,122 million, up 15% on the €13,152 million posted in 2011. This increase is explained by the defense of customer spreads in practically all the geographical areas where the Group operates, strong activity in emerging countries and positive management of structural interest-rate risk in an environment marked by low interest rates. By geographical areas, the following is worth mentioning:

  • Resilience in Spain, in a context of lower volumes, low interest rates and strong competition to attract liabilities, thanks to BBVA’s relatively better liquidity and solvency position. Overall, this area generated cumulative net interest income of €4,836 million, with a rise of 10.1% compared with the figure for the same period in 2011.
  • In Eurasia, cumulative net interest income increased by 5.5% year-on-year to €847 million for the year (€802 million in 2011). The incorporation of Garanti on March 22, 2011, strong activity with retail customers and the favorable trend in customer spreads, particularly in Turkey (largely due to the reduction in the cost of liabilities) are behind this good performance.
  • Mexico reported net interest income of €4,164 million in 2012, 7.8% higher than in 2011 at constant exchange rates. The greater volume of activity and adequate price management have enabled BBVA to offset the impact of record-low interest rates.
  • Net interest income in South America continues to perform strongly, benefiting from buoyant activity and the maintenance of customer spreads. Overall, the cumulative figure for the area as of December 2012 is €4,291 million, up 25.6% on the same period the previous year (excluding the exchange-rate effect).
  • In the United States, net interest income continued to be negatively affected by the Guaranty run-off, lower business volume in CIB, and the current environment of low interest rates with a practically flat curve. In contrast, the increase in the volume of loans and the year-on-year reduction in the cost of deposits had a positive impact. As a result, this heading stood at €1,682 million in 2012, down 4.7% at constant exchange rates.

The balance of the “Income from equity instruments” (dividends) heading for 2012 stood at €390 million, down 30.6% on the €562 million posted in 2011. Its main component, as in the previous year, is the dividends from BBVA’s investment in Telefónica, which have been suspended temporarily until November 2013.

The balance of the “Share of profit or loss of entities accounted for using the equity method” heading for 2012 amounts to €727 million, a 22.1% increase on the €595 million posted in 2011, mainly coming from the increase in the contribution from China National Citic Bank (CNCB) to the Group’s income statement, due to the growth of the banking business and to the significant improvement of its earnings on the same period last year.

The balance under the heading “Net fees and commissions” for 2012 stood at €4,353 million, up 8% on the €4,031 million posted in 2011. This increase is significant considering the adverse economic climate in developed countries and the regulatory changes that have come into force in some countries in which BBVA operates, and which have had a negative impact on the year-on-year comparison. However, the expansion of activity in emerging countries, as well as the incorporation of Garanti, offset the aforementioned factors.

The balance under the headings “Net gains (losses) on financial assets and liabilities” (NTI) and “Exchange differences (net)” for 2012 stood at €1,767 million, up 19.3% on the €1,481 million in 2011, largely due to the inclusion of capital gains from buybacks of securitization bonds and subordinated debt in the second and third quarters, respectively.

The balance under the heading “Other operating income and expenses” for 2012 amounted to €82 million, compared with earnings of €206 million in 2011. This heading continues to benefit from the positive performance of the insurance business in all the geographical areas. However, because it also includes the increased allocations to the deposit guarantee funds in the different regions where BBVA operates, it fell 60.3% in the year.

“Gross income” in 2012 amounted to €22,441 million, an increase of 12.1% compared with the €20,028 million posted in 2011. Without taking into account the less recurrent items from NTI and dividends, this figure would be €20,284 million, with growth of 12.8% over the same period.

The balance of “Operating expenses” in 2012 stood at €10,786 million, up 10.8% on the €9,737 million registered in 2011. This is due to the investment efforts being made, basically in emerging geographical areas and in technology. The size and scale of the Group have enabled it to undertake significant investments in global technology projects, particularly in the area of transformation and innovation. They have positioned the Bank at the forefront of technological innovation in the sector. BBVA started up a number of projects in 2012, including the implementation of the new BBVA Compass technological platform in all its branches in the United States. Progress has also been made in the Group’s multichannel distribution model, of which one example is the launch of “Dinero Móvil BBVA Bancomer” in Mexico.

The following are worth highlighting in terms of number of employees, branches and ATMs:

  • The reduction in staff of over 1,600 people in the last quarter, largely due to the sale of BBVA Puerto Rico, the restructuring plan in Unnim and the streamlining of operating circuits through the implementation of the new platform in BBVA Compass. Despite this, the number of employees at the end of 2012 stood at 115,852; 5,207 higher than at the end of 2011.
  • The number of branches increased by 521 units to 7,978. There are two main opposite factors: the incorporation of Unnim and the sale of the Puerto Rico business. The figures also continue to increase in Latin America.
  • Lastly, the number of ATMs, at 20,177 units as of December 31, 2012, has increased by 1,383 units. The investment effort made by the Bank in ATMs continues to be notable, as they are considered one of the key differentiating elements in BBVA’s multichannel strategy.

The balance of the “Depreciation and amortization” heading in 2012 amounted to €1,018 million, an increase of 21.4% on the €839 million posted in 2011, due to the investments made in technology in recent years.

The above factors, combined with the good performance of revenue, mainly recurring in nature, have led to an improvement in the Group’s efficiency ratio to 48.1% in 2012 (48.4% in 2011). It continues to be one of the lowest at global level. Meanwhile, “Operating income” has risen 13.3% to €11,655 million as of December 31, 2012.

This recurring and resilient generation of operating income has laid the sound foundations that have enabled the Group to absorb the additional provisions for impairment in the value of its real estate assets in Spain. If we add the provisions made to cover the impairment of the assets related to the real estate sector in Spain, accounted for under the headings "Impairment losses on financial assets" and "Other gains (losses)", the total amount allocated by BBVA in 2012 totals €4,437 million. As a result, the balance of the “Impairment losses on financial assets (net)” of 2012 was €7,981 million, up 88.9% on the €4,226 million for 2011.

The balance under the heading “Provisions expense (net)” in 2012 reached €651 million, a 28% increase on the €508 million recorded in 2011, and basically includes early retirements, other contributions to pension funds and provisions for contingent liabilities.

The balance of “Other gains (losses)” as of December 31, 2012 is a loss of €1,365 million, down 35.3% on the negative €2,110 in 2011. This heading includes provisions made for real estate and foreclosed or acquired assets in Spain and the badwill generated by the Unnim deal.

As a result of the above, “Income before tax” for 2012 stood at €1,659 million, a 51.9% decrease on the €3,446 million recorded in 2011.

The balance of “Income tax” in 2012 is a positive €276 million, largely due to the provisions arising from the aforementioned Royal Decrees and to revenue with a low or no tax rate (particularly dividends and income by the equity method).

As already mentioned, due to the negotiations for the sale of the mandatory pension business in Latin America, the earnings in 2012 (and likewise in 2011 for comparison purposes) have been reclassified under “Earnings from discontinued operations” for the amount of €393 million, up 59.8% on the figure for 2011.

“Net income attributed to non-controlling interests” for 2012 is €651 million, an increase of 35.3% on the €481 million in the previous year, due basically to the growth in earnings from Venezuela and Peru.

Finally, “Net income attributed to parent company” for 2012 stood at €1,676 million, down 44.2% on the €3,004 in 2011. Not including the additional provisions due to the impairment of assets related to the real estate business in Spain and the Unnim badwill, the attributed income for the year amount to €4,406 million. To sum up, the BBVA Group continues to generate sound earnings despite the difficult environment.

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BBVA Group 2012 2011
EPS (Earnings per Share) 0.32 0.62
ROE (Return on Equity) 4.0 8.0
ROA (Return on Asset) 0.37 0.61
Efficiency ratio (%) 48.1 48.6
NPL Ratio (%) 5.1 4.0
NPL Coverage Ratio (%) 72 61
Risk premium (%) 2.2 1.2

Earnings per share (EPS) in 2012 stood at €0.32 (€0.82 adjusted EPS), compared with €0.62 (€0.92 adjusted EPS) in December 2011.

Return on equity (ROE) as of December 31, 2012 stood at 4% (10.5% adjusted), compared with 8.0% (11.9% adjusted) in December 2011, while return on total average assets (ROA) was 0.37% (0.1% adjusted), compared with 0.61% (0.88% adjusted) in December 2011.