Industry Trends

In the first quarter of 2012 net interest income in the US banking sector was better than anticipated, with levels of mortgage revenue holding up strongly. However, some analysts are concerned about the sustainability of these positive trends due to increased fears about a bigger than expected slowdown of the US economy.

Expenses continue to be an area of focus, as banks will try to mitigate the likely effect of dampened revenue levels through greater cost control. Moreover, expense levels in the previous quarter remained higher than projected, so savings and efficiency should be a distinguishing characteristic for banks.

Credit quality continues to improve, with lower provisions having a positive impact on results in the financial industry.

As regards lending, the C&I and auto segments continue to be bright spots. However, overall loan growth is expected to be modest in the second quarter of 2012.

Another important point is that as the implementation of the proposed Basel III rules nears, several peers are taking capital actions in preparation, such as the conversion of preferred securities.

Finally, the exchange rate of the dollar against the euro has strengthened in the last quarter and the last year, both in terms of the fixing and average rate. This has had a positive impact on the balance sheet, activity and earnings in the area over the quarter and in the last 12 months. Unless indicated otherwise, all comments below on percentage changes refer to constant exchange rates, with the aim of providing a better understanding of the performance of the business in the United States.

Income statement

(Million euros)

					Units:
	The United States				BBVA Compass
	1H12	Δ%	Δ% (1)	1H11	1H12	Δ%	Δ% (1)	1H11
Net interest income	849	4.8	(3.4)	810	739	5.3	(2.2)	698
Net fees and commissions	313	(1.3)	(9.5)	317	262	0.6	(7.0)	261
Net trading income	100	20.1	9.9	83	70	19.2	12.2	57
Other income/expenses	(36)	46.6	35.5	(24)	(33)	39.0	32.4	(23)
Gross income	1,226	3.4	(4.9)	1,186	1,038	4.1	(3.4)	994
Operating costs	(783)	6.3	(2.2)	(737)	(682)	4.9	(2.5)	(646)
Personnel expenses	(448)	14.4	5.3	(392)	(390)	11.5	4.2	(346)
General and administrative expenses	(249)	(4.7)	(12.3)	(261)	(208)	(4.3)	(12.0)	(219)
Deprecation and amortization	(86)	2.3	(5.5)	(84)	(84)	1.8	(5.7)	(82)
Operating income	443	(1.3)	(9.4)	449	357	2.4	(5.1)	347
Impairment on financial assets (net)	(54)	(72.1)	(74.0)	(193)	(43)	(70.0)	(79.5)	(195)
Provisions (net) and other gains (losses)	(31)	n.m.	268.6	(7)	(27)	n.m.	n.m.	0
Income before tax	358	43.9	31.2	249	287	79.3	73.8	153
Income tax	(113)	64.4	49.7	(69)	(90)	113.4	108.8	(40)
Net income	245	36.1	24.2	180	196	67.1	61.3	113
Non-controlling interests	-	-	-	-	-	-	-	-
Net attributable profit	245	36.1	24.2	180	196	67.1	61.3	113

(1) At constant exchange rate.

Balance sheet

(Million euros)

					Units:
	The United States				BBVA Compass
	30-06-12	Δ%	Δ% (1)	30-06-11	30-06-12	Δ%	Δ% (1)	30-06-11
Cash and balances with central banks	2,577	(57.3)	(62.8)	6,034	2,154	44.2	29.9	1,444
Financial assets	8,371	12.3	(2.1)	7,451	8,253	24.1	10.4	6,512
Loans and receivables	41,544	11.3	(3.0)	37,315	35,975	23.5	9.8	28,536
Loans and advances to customers	39,361	9.4	(4.7)	35,973	34,134	20.6	7.1	27,765
Loans and advances to credit institutions and other	2,183	62.8	41.8	1,341	1,841	125.0	108.1	770
Inter-area positions	-	-	-	1,279	412	-	-	-
Tangible assets	822	1.5	(11.6)	810	808	3.8	(9.2)	775
Other assets	6,204	191.2	153.6	2,131	1,885	1.9	(11.0)	1,846
Total assets/Liabilities and equity	59,518	8.2	(5.8)	55,020	49,487	23.9	10.2	39,113
Deposits from central banks and credit institutions	7,241	(20.3)	(30.5)	9,081	4,842	66.8	51.8	2,779
Deposits from customers	38,143	0.6	(12.3)	37,902	37,155	19.7	6.2	30,478
Debt certificates	-	-	-	325	-	-	-	-
Subordinated liabilities	909	(14.3)	(25.3)	1,061	842	3.4	(9.6)	812
Inter-area positions	1,829	n.s.	n.s.	-	-	-	-	-
Financial liabilities held for trading	467	33.6	16.4	349	466	71.3	56.1	260
Other liabilities	7,778	138.1	107.4	3,266	3,606	37.1	23.0	2,553
Economic capital allocated	3,152	3.8	(9.6)	3,037	2,576	13.9	0.6	2,231

(1) At constant exchange rate.

Significant ratios

(Percentage)

	The United States
	30-06-12	31-03-12	30-06-11
Efficiency ratio	63.9	64.0	62.1
NPA ratio	2.8	3.2	4.0
NPA coverage ratio	82.2	75.5	67.1
Risk premium	0.3	0.3	1.0

The United States. Operating income

(Million euros at constant exchange rate)

(1) At current exchange rate: —1.3%.

The United States. Net attributable profit

(Million euros at constant exchange rate)

(1) At current exchange rate: +36.1%.