The United States

Business activity ⁽¹⁾
(Year-on-year change at constant exchange rate. Data as of 30-06-2017)

⁽¹⁾ Excluding repos.

Net interest income/ATA
(Percentage. Constant exchange rate)

Operating income
(Million euros at constant exchange rate)

⁽¹⁾ At current exchange rate: +23.3%.

Net attributable profit
(Million euros at constant exchange rate)

⁽¹⁾ At current exchange rate: +66.4%.

Breakdown of performing loans under management ⁽¹⁾
(30-06-2017)

Breakdown of customer funds under management ⁽¹⁾
(30-06-2017)

Macro and industry trends

According to the latest information from the Bureau of Economic Analysis (BEA), U.S. GDP slowed in the first quarter of 2017 to 1.4% in annualized terms. The most recent figures suggest there will be a moderate upturn in the second quarter. Although the sluggish start to the year could raise concerns about the chances of achieving 2% growth for the whole year, there seems to be sufficient capacity for investment, following the slowdown in 2016. The growth forecast by BBVA Research is still above 2% for 2017, supported by a pick-up in investment (the energy sector and residential construction), which should offset the moderation expected in consumption as a result of higher inflation and more gradual improvement in the labor market than expected.

With regard to the currency markets in the first half of 2017, the dollar's depreciating trend against the euro heightened in the second quarter of the year. This is primarily a reflection of two factors: the FED's restatement of the gradual normalization of its monetary policy and the lower probability of a fiscal stimulus in the short term in the United States; and also, a stronger than expected economy in Europe so far this year.

The financial system continues in good shape overall. According to the FED's latest available data, the system's overall NPL ratio has been on the decline since the first quarter of 2010. At the close of March 2017 it posted a significant fall, dropping below 2% for the first time since 2007. In terms of the total volume of credit, the latest available information as of May 2017 gives moderate year-on-year rates of growth of around 5%. Commercial loans have grown by 0.9%, residential mortgage loans increased by 3.7% and consumer finance by 1.4%. The trend for total deposits in the system continues upward, and as of May 2017 the year-on-year growth was 8.1%.

Activity

All the comments below on rates of change, for both activity and earnings, will be given at constant exchange rate, unless expressly stated otherwise. These rates, together with changes at current exchange rate, can be seen in the attached tables of financial statements and relevant business indicators.

Lending activity (performing loans under management) continues the trend to moderation which began in the second half of 2015. This trend is based on the area's selective growth strategy in the most profitable portfolios and segments that represent more efficient capital consumption. As a result, there has been a decrease overall in this heading, over the semester (down 1.7%). At the close of June 2017, total balance is similar to the close of March (down 0.3%).By portfolios, growth is still primarily focused on consumer loans (up 0.4% over the first-half and 1.2% in the quarter), and in some categories of commercial loans (commercial real-estate, mortgage-backed loans and above all credit cards).

The main asset quality indicators have been stable over the quarter and significantly improved in the first half. The NPL ratio closed at 1.3% and the NPL coverage ratio at 105%.

Customer deposits under management declined (down 4.9% year-on-year and 4.2% in the quarter), strongly influenced by the strategic measures implemented by the area to manage the cost of liabilities and increase profitability.

In terms of capital, for the fourth consecutive year that BBVA Compass has been subject to the Comprehensive Capital Analysis Review, the FED did not raise any objections to the capital plan presented by BBVA Compass. BBVA Compass has also passed the stress test carried out under the provisions of the Dodd-Frank Act, with regulatory capital ratios exceeding the required minimums.

Results

The United States has generated a cumulative net attributable profit through June 2017 of €297m, far higher than the same period the previous year. The most relevant aspects of the area's income statement are as follows:

• Net interest income continues to perform positively, with a cumulative figure rising by 13.6% year-on-year. This is due to the combined result of the strategic measures adopted by BBVA Compass to improve loan yields and reduce the cost of deposits, as well as the FED's interest-rate hikes.
• Cumulative Income from fees and commissions up to June reported an increase of 7.6% due to the good performance of virtually all items.
• Reduction of 42.1% in NTI compared with the figure for the same period the previous year. The positive performance of the Global Markets unit, particularly in the first part of the semester, has not been sufficient to offset the capital gains from portfolio sales in the first half of 2016.
• Operating expenses reported a slight increase of 1.4% concentrated on administrative expenses, as personnel costs and amortization of intangible assets declined.
• Lastly, impairment losses on financial assets were significantly down on the first half of 2016 (down 26.2%), when (above all in the first quarter) provisions were allocated in response to the rating downgrade of some companies operating in the energy (exploration & production) and metal & mining (basic materials) sectors. As a result, the cumulative cost of risk as of 30-Jun-2017 was 0.38%, a clear fall compared with the figure in the same period of 2016 and the first quarter of 2017.

Financial statements and relevant business indicators
(Million euros and percentage)