Earnings (more information on pages 4-8)

 

•

Good year-on-year revenue performance, especially those of more recurring nature.

 

•

Operating expenses growing below gross income, which has a positive influence on operating income and the efficiency ratio.

 

•

Impairment losses on financial assets in line with the quarterly average in 2014.

 

•

The result from corporate operations is due to the capital gains (net of taxes) from the various sale operations equivalent to 5.6% of BBVA Group’s stake in China Citic Bank (CNCB).

Balance sheet and business activity (more information on pages 9-10)

 

•

Favorable performance of production of new loans in practically all the geographical areas.

 

•

Also, good performance of customer funds.

 

•

Further decline in non-performing loans.

Solvency (more information on page 11)

 

•

BBVA’s capital levels are well above the minimum required levels, thanks basically to three factors: organic generation of earnings, closing of the aforementioned sale of CNCB and issuance of instruments eligible as additional Tier I.

 

•

The Bank’s leverage ratio (fully-loaded) also continues to compare very favorably with that of its peer group.

 

•

Moody’s has placed BBVA’s senior debt and deposit long-term rating in review for an upgrade.

Risk management (more information on pages 12-13)

 

•

The main credit risk indicators continue to perform well.

The BBVA share (more information on page 14)

 

•

A new bonus share issue was carried out in April to implement the “dividend option”. On this occasion, the holders of 90.3% of the free allocation rights chose to receive new shares, which once more demonstrates the success of this remuneration system.

 

•

Holding of the Annual General Meeting on March 13, with attendance at more than 62%, in line with previous meetings, and with very strong support from both institutional and individual shareholders. BBVA’s management during 2014 has thus once again received very strong support. BBVA has been the first company in Spain to ask its shareholders to vote on the remuneration policy of its Board of Directors, and obtained more than 95% of the vote in favor.

Business areas (more information on page 16)

 

•

Presentation of Turkey separately from the rest of Eurasia.

 

•

Application of the SIMADI in Venezuela.

Other matters of interest

 

•

In digital transformation, as of February 2015, BBVA has 9.4 million digital customers, who interact with the Entity via the Internet or cell phones (+21% average annual growth rate-CAGR-since December 2011). Of these, 4.6 million are mobile banking customers (+129% CAGR also from December 2011). Including Garanti, BBVA has 12.8 million digital customers and 6.4 million mobile banking customers.

 

The following are the most notable aspects of BBVA Group’s earnings in the first quarter of 2015:

Gross income

Year-on-year increase of 8.3% in recurring revenue, thanks to the growth of net interest income in practically all geographical areas and to the positive trend in fees and commissions, despite the regulatory limitations that took effect in several countries in recent quarters.

Net gains/losses on financial assets (NTI) above the figure reported for the first quarter of 2014, largely due to portfolio sells and to the good performance of the Global Markets unit in the quarter.

 

Thus, the Group’s gross income has risen by 11.5% over the last twelve months to €5,632m in the quarter.

Operating income

There has been a moderate increase in operating expenses, largely because they have been kept in check in Spain, the United States and Corporate Center. This has offset the effect of the high inflation in some countries and the digital transformation plans that the Group continues to implement.

 

This digital transformation process is driving the alternative sales channels. It explains the growing number of ATMs, which, in turn, makes it possible to reduce the number of branch offices.

 

The number of employees remains the same this quarter at the aggregate level (up 0.1%), with no major changes by geographical area.

 

The year-on-year increase in expenses has been lower than that of gross income, thus improving the efficiency ratio (to 49.3% from the figure of 51.7% in the first quarter of 2014) and boosting operating income to €2,857m, a year-on-year increase of 17.2%.

 

Provisions and others

Impairment losses on financial assets have been very similar to the 2014 quarterly average. They fall in Spain and have increased in the Americas and Turkey, in line with the performance of the business activity.

Provisions include among others, the costs stemming from the Group’s digital transformation plans, provisions for contingent liabilities and contributions to pension funds. These items totaled €230m in the quarter.

The main component of other gains (losses) is loan-loss provisions for real estate and foreclosed or acquired assets in Spain, which have decreased 62.0% in the first quarter of 2015.

Profit

As a result of the above, net income from ongoing operations grew year-on-year by 42.0%.

 

The results from corporate operations line includes the capital gains (€583m net of taxes) from the various sale operations equivalent to 5.6% of BBVA Group’s stake in CNCB. In 2014 there were no transactions under this heading.

As a result, the net attributable profit for the quarter stands at €1,536m, well above the €624m reported for the same period the previous year.

 

By business area, banking activity in Spain has contributed €347m, real-estate activity in Spain generated a loss of €154m, while the United States contributed €136m, Turkey €86m, Mexico €524m, South America €227m and the Rest of Eurasia €36m.

BBVA Group excluding Venezuela

On February 10, 2015, the Venezuelan government announced the closure of SICAD II as a mechanism regulating the purchase and sale of foreign currency, its merger with SICAD I in a new SICAD (not yet in place) and the creation of a new foreign-currency system called SIMADI. In accordance with the IAS 21, the exchange rate to be used to convert currencies is that which in the entity’s judgement best reflects the situation at the date of the financial statements. The exchange rate used by the Group for converting the Venezuelan currency as of March 31, 2015 is that of SIMADI. Below are the income statements for the Group, excluding Venezuela.

 

The Group’s balance sheet and business activity in the first quarter of 2015 were shaped by:

 

•

The strengthening against the euro of the exchange rates of the currencies that most influence the Group’s financial statements, with the exception of the Venezuelan bolivar.

 

•

There was widespread growth in gross lending to customers, with the exception of Spain, where year-on-year growth rates remain negative, but are gradually improving.

 

•

In customer deposits all geographical areas recorded growth. In Spain there was an outflow from time deposits

due to the significant decrease in costs compared with figures for the same period the previous year. Those funds were partly transferred to current and savings accounts and partly to mutual funds.

 

•

Further reduction in non-performing loans in the quarter.

 

•

Lastly, off-balance-sheet funds continue to perform very well, particularly in Spain, due to the aforementioned transfer of funds, although they are also progressing well in all other geographical regions.

 

Loans and advances to customers

(Million euros)

 

		31-03-15				D%				31-03-14				31-12-14
Domestic sector			160,938				(4.5	)			168,461				162,652
Public sector			23,106				(3.6	)			23,962				23,362
Other domestic sectors			137,832				(4.6	)			144,499				139,290
Secured loans			86,144				(6.2	)			91,858				87,371
Other loans			51,688				(1.8	)			52,641				51,920
Non-domestic sector			191,148				22.3				156,233				180,719
Secured loans			79,500				25.4				63,391				72,836
Other loans			111,648				20.3				92,842				107,883
Non-performing loans			22,787				(9.0	)			25,033				23,164
Domestic sector			18,058				(11.3	)			20,356				18,563
Non-domestic sector			4,729				1.1				4,677				4,601
Loans and advances to customers (gross)			374,873				7.2				349,726				366,536
Loan-loss provisions			(14,607	)			(2.8	)			(15,028	)			(14,781	)
Loans and advances to customers			360,265				7.6				334,698				351,755

Customer funds

(Million euros)

 

		31-03-15				D%				31-03-14				31-12-14
Deposits from customers			339,675				9.6				309,817				330,686
Domestic sector			150,512				0.1				150,415				145,251
Public sector			13,142				(27.6	)			18,160				10,651
Other domestic sectors			137,370				3.9				132,255				134,600
Current and savings accounts			62,783				18.1				53,150				59,509
Time deposits			56,571				(17.6	)			68,676				60,783
Assets sold under repurchase agreement and other			18,016				72.8				10,428				14,308
Non-domestic sector			189,163				18.7				159,402				185,435
Current and savings accounts			113,399				15.2				98,402				113,795
Time deposits			69,107				34.3				51,473				62,705
Assets sold under repurchase agreement and other			6,657				(30.1	)			9,527				8,935
Other customer funds			127,364				24.7				102,128				115,275
Spain			74,824				20.2				62,263				69,943
Mutual funds			30,743				29.3				23,783				28,695
Pension funds			22,595				7.6				20,994				21,880
Customer portfolios			21,485				22.9				17,486				19,368
Rest of the world			52,540				31.8				39,865				45,332
Mutual funds and investment companies			26,798				23.2				21,759				24,087
Pension funds			6,349				46.6				4,331				5,484
Customer portfolios			19,394				40.8				13,775				15,761
Total customer funds			467,039				13.4				411,945				445,961

 

 

Solvency

Capital base

BBVA ended the first quarter of 2015 with comfortable capital levels clearly above the minimum regulatory requirements and reached a leverage ratio (fully-loaded) that continues to compare very favorably with the rest of its peer group. The main highlights in the quarter are:

 

•

An issue of contingent convertible securities, eligible as additional Tier I, for an amount of €1.5bn.

 

•

The various sale operations of BBVA Group’s stake in CNCB.

 

•

It should be noted that a 40% phased-in is applied to the CET1 ratio in 2015, versus the 20% in 2014.

 

•

Lastly, RWAs are down 1.1% in the quarter. The positive impacts stemming from the increased lending activity and the appreciation of the exchange rates of most currencies against the euro, have been offset by the application of the new SIMADI exchange-rate system in Venezuela.

 

Another relevant highlight in the quarter was that BBVA Compass passed the stress tests conducted in the United States and, thus, its capital plans have been approved without objections by the Fed. Moreover, in April, BBVA Compass completed a subordinated debt issue, eligible as Tier II, for $700m, with demand that was oversubscribed over 4.8 times.

To sum up, the Group’s capitalization levels easily exceed the regulatory limits and enable it to meet all the capital targets.

Ratings

After the publication by Moody’s of the new bank rating methodology on March 16, the agency has reviewed its forecasts to upgrade the long-term rating for BBVA’s senior debt and deposits. Should the upgrades take place, the senior debt rating would be one notch higher and the rating for deposits would be up two notches.

On February 10, DBRS changed its forecast for BBVA from negative to stable. This is a reflection of its outlook on the improvement of the Group’s fundamentals, reinforced after the presentation of the results for the fourth quarter of 2014.

Ratings

 

Long term

Short term

Outlook

DBRS

A

R-1 (low)

Stable

Fitch

A–

F-2

Stable

Moody’s

Baa2

P-2

Under review for upgrade

Scope Ratings

A

S-1

Stable

Standard & Poor’s

BBB

A-2

Stable

 

Credit risk

In the first quarter of 2015 the main variables related to the Group’s credit risk management have been positive, in line with the trend of previous quarters:

 

•

The Group’s credit risk has increased by 2.5% since the end of 2014, despite the negative effect of the application of the new SIMADI exchange rate in Venezuela.

 

•

Stability in NPL flows due to containment of gross additions.

 

•

Therefore, positive trend in the NPL ratio, which closed at 5.6% as of 31-Mar-2015.

 

•

Improvement in the coverage ratio (65%) and the cost of risk (1.21% accumulated to March 2015, compared with 1.25% in 2014 and 1.27% in the same period the previous year).

 

Liquidity and funding

Management of liquidity and funding aims to finance the recurring growth of the banking business at suitable maturities and costs, using a wide range of instruments that provide access to a large number of alternative sources of finance.

A core principle in BBVA’s management of the Group’s liquidity and funding is the financial independence of its banking subsidiaries abroad. This principle prevents the propagation of a liquidity crisis between the different areas and ensures that the cost of liquidity is correctly reflected in price formation.

In the first quarter of 2015, the liquidity conditions remained comfortable across BBVA’s global footprint:

 

•

The third TLTRO auction was held in March, at which BBVA borrowed €2,000m.

 

•

The long-term wholesale financial markets in Europe have remained stable and BBVA completed a new issue of mortgage-covered bonds for €1,250m.

 

•

Short-term funding in Europe has also continued to perform extremely well, in a context marked by a high level of market liquidity.

 

•

In general, the financial soundness of the banks in other regions is based on the funding of lending activity, done basically with customer funds.

Foreign exchange

Foreign-exchange risk management of BBVA’s long-term investments, basically stemming from its franchises abroad, aims to preserve the Group’s capital adequacy ratios and ensure the stability of its income statement.

The first quarter of the year saw gains in the dollar against the euro and greater volatility in those emerging currencies affected by the major fall in the oil price. In this context, BBVA has maintained a policy of actively hedging its investments in Mexico, Chile, Colombia, Turkey and the dollar area. In addition to this corporate-level hedging, dollar positions are held at a local level by some of the subsidiary banks. The foreign-exchange risk of the earnings expected from abroad for 2015 is also managed.

Interest rate

The aim of managing this risk is to maintain sustained growth of net interest income in the short and medium term, irrespective of interest-rate fluctuations.

In the first quarter of 2015, the results of this management have been satisfactory, with limited risk strategies in Europe, the United States and Mexico. The amount of NTI generated in these geographical areas is the result of prudent portfolio management strategies, particularly in terms of sovereign debt, in a context marked by low interest rates.

Economic capital

Attributable economic risk capital (ERC) consumption at the end of March 2015 stood at €30,836m⁽¹⁾, equivalent to an increase of 1.3% with respect to the close of December 2014. The most significant changes are summarized below:

 

•

Increase in credit ERC due to the euro’s depreciation against the respective local currencies (except the Venezuelan bolivar fuerte), affected by the approval of the quantitative easing (QE) program approved by the European Central Bank (ECB).

 

•

Decline in equities ERC due to the reduction of the stake in CNCB.

 

 

The BBVA share

In the first quarter of 2015, the global economy has continued to show differences between the geographical areas, with better relative performance in developed economies compared with the gradual slowdown in China and moderate activity in other emerging regions. This is taking place in a scenario of certain geopolitical tensions, an absence of inflationary pressures and diverging monetary policies.

Against this backdrop, the main stock market indices ended the first quarter of 2015 with general rises, which were significantly higher in Europe than in the United States (the Euro Stoxx 50 up 17.5%, the Ibex 35 up 12.1% and the S&P500 up 0.4%). The Eurozone banking index, Euro Stoxx Banks, gained 17.2% in the quarter, while the S&P Regional Banks in the United States lost 0.9% in the same period.

As of March 31, 2015, the BBVA share price stood at €9.41 per share, a gain of 19.8% over the quarter and 7.9% in the last 12 months. In quarter-on-quarter terms it outperformed the Ibex 35 and the European indices Euro Stoxx 50 and Euro Stoxx Banks. As of 31-Mar-2015, the share has a weighting of 10.51% on the Ibex 35 and of 2.49% on the Euro Stoxx 50. As of the same date, BBVA’s market capitalization stood at €58,564m, 20.8% higher than on 31-Dec-2014.

With respect to shareholder remuneration, at the meeting held on March 25, 2015 the Board of Directors of BBVA agreed to perform a capital increase against reserves for the implementation of the “dividend option” shareholder remuneration scheme. Each shareholder is entitled to one

The BBVA share and share performance ratios

 

		31-03-15				31-12-14
Number of shareholders			944,631				960,397
Number of shares issued			6,224,923,938				6,171,338,995
Maximum price (euros)			9.60				9.66
Minimum price (euros)			7.21				7.45
Closing price (euros)			9.41				7.85
Book value per share (euros)			8.09				8.01
Market capitalization (million euros)			58,564				48,470
Price/book value (times)			1.2				1.0
PER (Price/earnings; times)			15.9				17.3
Yield (Dividend/price; %)(1)			3.4				4.5

 

(1)	Calculated by dividing the median of the forecast dividend per share of a consensus of analysts by the BBVA share price at the end of each quarter.

free allocation right for each BBVA share held on the date of publication of the announcement of the capital increase in the Official Bulletin of the Companies Register, with 70 rights entitling the holder to one new BBVA share. Alternatively, shareholders who wish to receive their remuneration in cash are entitled to sell their free allocation rights to BBVA at a gross fixed price of €0.13 per right during the first ten calendar days of their trading period, or on the market during the complete trading period. This system seeks to optimize and customize the remuneration scheme so that shareholders can benefit from greater flexibility, since they can adapt their remuneration to their preferences and personal circumstances.

 

 

The highlight of the first quarter of 2015 in terms of responsible banking has been BBVA’s joining of CSR Europe (The European Business Network for Corporate Social Responsibility) and the launch of ‘Camino al éxito’ (Path to Success).

Founded to promote companies’ contributions to social development at both the local and European levels, CSR Europe has the participation of 70 large international companies, and BBVA is the first Spanish financial entity to join. Through active collaboration, the members of CSR Europe have been able to influence European policies on employment, education and the environment, as well as to promote inclusive and sustainable growth.

‘Camino al éxito’ is a comprehensive program for SMEs in South America whose aim is to contribute to their growth and, therefore, to the development of Latin American societies. The program has been launched in seven countries in which BBVA is present (Argentina, Chile, Colombia, Paraguay, Peru, Uruguay and Venezuela) and addresses three areas: 1) training, 2) financing and value offer and 3) recognition and visibility.

Investment in social programs

In March 2015, the 2014 Responsible Banking Report was published. According to the Report, the Group allocated €107.15m to social programs, representing 4.1% of the net attributable profit and an increase of 10% on 2013. BBVA allocated 16% of said investment to financial literacy and 17% to high social impact products, 25% to educational programs for society and 41% to other strategic projects. By geographical area, 37% is allocated to Spain, 22% to Mexico, 11% to South America, 5% to the United States, 21% to the BBVA Foundation and 5% to the Microfinance Foundation.

TCR Communication

BBVA continues to make progress on closer and simpler communication with its customers. In 2015, the aim is to be perceived as one of the top two banks for the clearest and most transparent communication in the eight main geographical areas where we operate. On January 1, 2015, the TCR Commercial Communication Code was implemented. This document contains the principles to be followed in commercial communication and advertising in the Group to guarantee they are transparent, clear and responsible.

Financial literacy

In the first quarter of 2015, BBVA joined the program ‘Tus Finanzas, Tu Futuro’ (Your Finances, Your Future), the joint initiative of 16 Spanish banks promoted by the Spanish Banking Association (AEB), whose purpose is to foster financial literacy among Spanish youth. The aim is to enroll 6,500 students and more than 100 schools around Spain in the course, which will be taught by 400 volunteers. All volunteers will be employees from participating banks.

Products with a high social impact

The use of new digital channels and products bolsters a form of banking that is in touch with the needs of every customer. They also make it possible to unveil new opportunities for banking penetration for a segment of the population that is also in need of a savings strategy to help make financial projects a reality. BBVA Bancomer continues to lead in the creation of financial products and services for lower income customers, who benefit from access to the bank through various channels. This, in turn, strengthens financial inclusion, as seen in the 40% share achieved in this segment. Moreover, the entity in Mexico maintains its banking correspondent network with 24,500 member retailers. Through them, more than 45 million transactions are completed every year.

The BBVA Microfinance Foundation serves almost 1.6 million customers, to whom €983m in microloans have been granted. A total of 96% of these customers are considered successful in the business they have set up to rise out of poverty. The BBVA Microfinance Foundation has signed an alliance with UN WOMEN to promote the development and inclusion of low-income female entrepreneurs in Latin America and the Caribbean.

The Momentum Social Investment committee has selected the five 2014 Momentum Project ventures and another two from past editions. The recipients will receive more than €900,000 to grow their business. With this funding, Momentum Project wants to lead and promote social investment in Spain, to which it has allocated more than €8m since its launch in 2011.

Society

Innovation and knowledge

The BBVA Foundation Ayudas a Proyectos de Investigación (Research Project Grants) program has received more than 1,000 project applications from a total of 7,607 researchers in hopes of accessing one of the 21 BBVA Foundation Research Project Grants in the areas of Biomedicine, Ecology and Conservation Biology, Socioeconomics and Digital Humanities, in this first edition of the call for proposals. This program has €2.2m in funds available per year.

Environment

BBVA has significantly boosted its Global Eco-efficiency Plan with the signing of an agreement with Iberdrola for the electric power supplied to the 3,091-branch offices network and 71-buildings in Spain to be entirely renewable as of 2015. This measure will prevent the emission of 180,000 tons of CO₂ per year, the equivalent of the annual emissions of 75,000 vehicles, a city with 50,000 inhabitants or the planting of 4.5 million trees.

On March 28, 2015, the BBVA Group again took part in the global Earth Hour campaign, switching off the lights of 523 buildings (133 corporate buildings and 390 branch offices) in 158 cities in 10 countries in the Americas and Europe. This project, which is now in its seventh edition, has become the main world event for environmental protection.

 

Business areas

This section presents and analyzes the most relevant aspects of the Group’s different areas. Specifically, it shows the income statement, the balance sheet, the business activity and the most significant ratios in each of them.

In 2015 changes have been made to the reporting structure of BBVA Group’s business areas with respect to that in place during 2014. Due to the increase of the stake in the Turkish bank Garanti to 39.9%, expected to take effect in the coming months, its balance sheet and earnings are presented separately from the rest of Eurasia. Thus, the business areas are:

 

•

Banking activity in Spain includes, as in previous years, the Retail Network, Corporate and Business Banking (CBB), Corporate & Investment Banking (CIB), BBVA Seguros and Asset Management. It also includes the portfolios, funding and structural interest-rate positions of the euro balance sheet.

 

•

Real-estate activity in Spain basically covers lending to rea l-estate developers and foreclosed real-estate assets in the country.

 

•

The United States encompasses the business conducted by the Bank in that country through BBVA Compass, the office in New York and Simple.

 

•

Turkey includes BBVA’s stake in the Turkish bank Garanti (currently 25.01%, as the additional 14.89% is still pending the relevant authorizations).

 

•

Mexico includes the banking and insurance businesses in the country.

 

•

South America includes the banking and insurance businesses that BBVA carries out in the region.

 

•

The rest of Eurasia includes the business carried out in the rest of Europe and Asia, i.e. the Group’s retail and wholesale businesses in the area.

In addition to the above, all the areas include a remainder made up of other businesses and a supplement that includes deletions and allocations not assigned to the units making up the above areas.

Lastly, the Corporate Center is an aggregate that contains the rest of the items that have not been allocated to the business areas, as it basically corresponds to the Group’s holding function. It includes: the costs of the head offices that have a corporate function; management of structural exchange-rate positions; specific issues of capital instruments to ensure adequate management of the Group’s global solvency; portfolios and their corresponding results, whose management is not linked to customer relations, such as industrial holdings; certain tax assets and liabilities; funds due to commitments with pensioners; goodwill and other intangibles. It also comprises the result from certain corporate operations carried out by the Group that are commented at various points in this report.

In addition to this geographical breakdown, supplementary information is provided for all the wholesale businesses carried out by BBVA, i.e. Corporate & Investment Banking (CIB). This aggregate business is considered relevant to better understand the Group because of the characteristics of the customers served, the type of products offered and the risks assumed.

Lastly, as usual, in the case of the Americas and Turkey the results of applying constant exchange rates are given in addition to the year-on-year variations at current exchange rates.

The Group compiles information by areas based on units at the lowest level, and all the accounting data related to the business they manage is recorded in full. These basic units are then aggregated in accordance with the organizational structure established by the Group for higher-level units and, finally, the business areas themselves. Similarly, all the companies making up the Group are also assigned to the different units according to the geographical area in which they carry out their activity.

Once the composition of each business area has been defined, certain management criteria are applied, of which the following are particularly important:

 

•

Capital. Capital is allocated to each business according to ERC criteria. This is based on the concept of unexpected loss at a specific confidence level, depending on the Group’s capital adequacy targets. The calculation of the ERC combines credit risk, market risk, structural balance-sheet risk, equity positions, operational risk, fixed-asset risk and technical risks in the case of insurance companies. These calculations are carried out using internal models that have been defined following the guidelines and requirements established under the Basel III capital accord, with economic criteria taking precedence over regulatory ones.

ERC is risk-sensitive and thus linked to the management policies of the businesses themselves. It standardizes capital allocation among them in accordance with the risks incurred. In other words, it is calculated in a way that is standard and integrated for all kinds of risks and for each operation, balance or risk position, allowing its risk-adjusted return to be assessed and an aggregate to be calculated for profitability by client, product, segment, unit or business area.

 

•

Internal transfer prices. BBVA Group has a transfer prices system whose general principles apply in the Bank’s different entities, business areas and units. Within each geographical area, internal transfer rates are established to calculate the net interest income of its businesses, under both the asset and liability headings. These rates consist of a reference rate (an index whose use is generally accepted on the market) that is applied based on the transaction’s revision period or maturity, and a liquidity premium, i.e. a spread, that is established based on the conditions and outlook of the financial markets in this respect. There are also agreements for the allocation of earnings between the product-generating units and the distribution units.

•

Allocation of operating expenses. Both direct and indirect costs are allocated to the business areas, except where there is no clearly defined relationship with the businesses, i.e. when they are of a clearly corporate or institutional nature for the Group as a whole.

 

•

Cross-selling. In some cases, consolidation adjustments are made to eliminate double accounting entries in the results of two or more units as a result of cross-selling incentives between businesses.