2nd Quarter Quarterly Report

Transcription

1 2nd Quarter 2016 Quarterly Report

2 Index 1. Salient aspects 2. Business 2.1 Main business 2.2 Real estate and related business 3. Banco Popular Group

3 1. Salient Aspects

4 Salient aspects of the second quarter The salient determining aspects of the second quarter of 2016 were the following: The results of the referendum in the UK about its non-permanence in the European Union and a reduction of the political uncertainty in Spain as a result of the general election on 26 June. Successful completion of the Bank s EUR 2,505 million capital increase with high demand (135.75% of the amount offered) and strong support from the Board (participation >20% post-increase). The adoption of the first measures aimed at achievement of the Plan: 1. Specialised and segmented management by businesses: Separation in management by businesses between the Main (and its businesses) and the real estate and related business. ü In the Main business, Banco Popular leads the field in SMEs and revolving cards, and the focus continues to be on profitability in which currently the Bank again leads the field (ROTE of 16.2% in the Main business). ü In the second segment, the focus is on accelerated and efficient divestment through specialized management of NPAs. 2. Operational and cost reduction optimization plan: Launch of a plan to optimize and transform the operating model to a more efficient one that will signify a cost saving of around EUR 175m per year starting in The priority focus of the capital increase and of the set of measures being implemented is the rapid recovery of the Group s normal levels of profitability. The goals of Plan 2018 are summarized below: Goals of Plan 2018 (1) % reduction of gross NPAs º 45% Coverage of NPAs (%) º 50% Efficiency ratio º 45% CET 1 FL º 12% ROTE (2) (with CET 1 FL 12%) º 9% Cash payout º 40% The Main business remains highly profitable The Main business displayed a good commercial performance with performing credit up 1.9% and commercial liabilities up 1.1% year on year. As regards earnings and on a cumulative basis, noteworthy was the negative effect of the elimination of the floor clauses and the contribution to the Single Resolution Fund in June (with a joint impact of EUR 96m). Excluding these aspects and disregarding the income from financial asset and liability transactions, the gross margin would have experienced a slight fall of 3% year on year in the first half, and is already showing signs of stabilization. The costs also performed well and the efficiency ratio stood at 40.1%, leading to net operating income of EUR 922m in the first half. The credit and real estate related impairments increased slightly, the cost of risk stood at 56 basis points. With the net profit of EUR 577m, the ROTE of the Main business (adjusted for the AT1 coupons) stood at 16.2% at the end of the first half of This Main business is undoubtedly profitable, even in a challenging environment. (1) Source: Company information. (2) Net profit attributed to the Group after payment of AT1 coupons as a percentage of Average Tangible Equity. These figures are goals, not estimates. There is no guarantee that these goals can or will be met and they should not be interpreted as an indication of the results expected by the Bank. 4

5 The business with SMEs and self-employed persons continues to be the keystone of the Group. 61% of the new credit production is to this segment, with growth strongly focused on the most dynamic economic sectors. In the SME and self-employed persons business, the Group has provided EUR 40,000m of financing to over one million customers through over one thousand specialised staff. The remainder of the credit is provided to other kinds of companies and, to a lesser extent, to private individuals. The consumer finance business continues to be highly profitable thanks to the good performance of WiZink (formerly Bancopopular-e) and will be supplemented by the recent acquisition of the Barclaycard business in Spain and Portugal where the market share is over 30%. Also noteworthy was the high contribution from the insurance, funds and securities business, which generated a ROTE of over 100% due to the low risk of these activities and the strong pace of marketing. The market share in mutual funds was up 5 basis points and the total volume managed increased by 1.5% year on year. The corporate banking and large corporates business increased its performing lending balance by 2.7%, with an improved cost of risk that stood at 21 basis points. Continued reduction of non-productive assets in the real estate and related business This business embraces the property and credit risk related to the property sector (development, construction, purchase/sale or rental of properties, accommodations) both in Spain and in foreign subsidiaries and investees. Continuing the trend noted during 2015, the volume of non-productive assets continued to decline in the first half of 2016 due to the good performance of property sales and a further reduction of the doubtful loan balance. Specifically, in this business segment the net non-performing balance fell by EUR 118m (1.6% year on year), thus persisting in the downward trend which started in Moreover, the high volume of property sales continued and totaled EUR 1,075m in the first half of It should be noted that the property sales display a very balanced pattern as regards quality and there was a significant increase in the sale of land. The Group s high solvency and comfortable liquidity position The Group s solvency ratios improved in the first half 2016, the main cause being the capital increase of EUR 2,505m, which raised the pro forma fully-loaded CET 1 ratio to 13.55%, the phase-in CET 1 ratio to 15,25%, and the phase-in leverage ratio to 7.15%. The LCR at the end of the first half stood at 161%, well above the minimum requirement. Also noteworthy was the fact that capital gains of EUR 92.2m were recorded in the first half of Coverage of the Group s NPAs at June 2016 was 37%, which in pro forma post-capital increase and including the potential provisions mentioned in note 29 on the risk factors of intermediate financial information would raise this ratio to 50%. The Group s reporting has been adapted to the evolution of the management by type of business model. As regards the impact of the new Bank of Spain Circular, the Group is in the process of analysis, and based on the information available, the additional impairments would be covered by the potential provisions noted in the previous paragraph. In this respect, the Bank will allocate the profit for the quarter to provisions. 5

6 2. Business 2.1 Main business

7 Main business ratio Total banking business excluding the real estate and related business scope, including mainly Retail Banking and its sub-businesses (SMEs, consumer, asset management and insurance etc), Private Banking, Wholesale banking, Fixed Income Portfolio and Markets Financing (assets and liabilities operations with credit entities, derivatives coverage and wholesale funding). Business volume Net lending to customers (ex Repos) 78,712,122 Customer deposits 87,831,282 LTD 89.6% Retail funds 107,119,792 Profitability and efficiency Net interest income/ata 1.8% Gross operating income/ata 2.6% Net Operating Income (Pre-provision Profit)/ATA 1.4% Average Total Assets 128,151,014 Operating efficency ratio 40.1% ROA 0.90% ROTE adjusted(*) 16.2% RWA 50,541,128 RORWA 2.28% MAIN BUSINESS (1s16 in thousands and %) Risk management Cost of risk 0.56% Gross non-performing loans 5,863,053 Net non-performing loans 3,324,118 NPA coverage ratio 43.3% Non-performing ratio 4.8% Total risks 121,536,021 Allowance for credit losses 2,538,935 Results Net interest margin 1,122,419 Gross operating income 1,634,953 Net Operating Income (Pre-provision Profit) 921,581 Profit before tax 783,667 Profit after tax 577,087 (*) Adjusted by the payment of AT1 interests and calculated over CET1 FL expected at the end of

8 Main business income statement (Amounts in euros thousand) Variation % = Net interest income 1,205,209 1,122,419 (6.9) + Share of the profit or (-) loss of investments in subsidaries, joint ventures and associates 74,485 86, Net fees and commissions 288, ,137 (5.4) ± Gains or losses on financial assets and liabilities (net) 319, ,256 (44.8) ±Net other operating income 39,716 (23,257) < =Gross operating income 1,927,400 1,634,953 (15.2) -Administrative expenses 678, ,252 (3.4) - Depreciation & amortisation 55,509 58, = Net Operating Income (Pre-provision Profit) 1,193, ,581 (22.8) -Impairment losses and provisions 213, , ±Gains / (Losses) on assets held for sale (net) ,804 > =Profit before tax 980, ,667 (20.1) ± Income tax 269, ,580 (23.3) =Profit/ Loss attributed to the controlling company 711, ,087 (18.9) 8

9 Main business balance sheet (Amounts in euros thousand) ASSETS Cash and cash balances at central banks 3,083,461 Financial assets held for trading 1,765,047 Financial assets designated at fair value through profit or loss 559,903 Available-for-sale financial assets 27,577,862 Loans and receivables 92,506,518 Deposits at credit institutions 6,380,806 Of which interbank deposits 435,829 Loans and advances to other debtors 85,355,462 Fixed Income 770,250 Held-to-maturity investments - Derivatives Hedge accounting 316,718 Fair value changes of the hedged items in portfolio hedge of interest rate risk 308,587 Investments in subsidaries, joint ventures and associates 1,505,061 Assets under reinsurance and insurance contracts 18,893 Tangible assets 815,385 Intangible assets 2,589,014 Tax assets 3,338,255 Other assets 694,286 Non-current assets and disposal groups classified as held for sale - Total assets 135,078,990 LIABILITIES Financial liabilities held for trading 1,731,995 Financial liabilities designated at fair value through profit or loss 596,524 Financial liabilities measured at amortised cost 141,155,155 Liabilities of credit institutions 33,007,469 Of which interbank deposits 1,754,911 Deposits from other creditors 88,164,161 Debt certificates including bonds 16,893,087 Subordinated liabilities 2,062,544 Other financial liabilities 1,027,894 Derivatives Hedge accounting 2,341,875 Fair value changes of the hedged items in portfolio hedge of interest rate risk - Liabilities under insurance and reinsurance contracts 490,754 Provisions 362,837 Tax liabilities 607,375 Share capital repayable on demand - Other liabilities 733,180 Liabilities included in disposal groups classified as held for sale - Net intra-segment funding (1) (22,352,382) Total liabilities 125,667,313 EQUITY Total equity 9,786,542 Other comprehensive income and accumulated (381,241) Minority interests (non-controlling interests) 6,376 Net asset value 9,411,677 Total liabilities and equity 135,078,990 (1) The real estate and related businesses assets are funded with the surplus retail and wholesale deposits of the Main Business through a transfer pricing system under which a financing cost is charged to the real estate and related business. The financing cost includes the market interest rate plus a liquidity premium and, in the case of real estate developers and non performing assets, the cost is the same as that of senior debt issuances of the entity. 9

10 Main business commercial GAP (Amounts in euros thousand y %) Net lending to customers 85,355,462 Reverse repos (valuation adjustments included) 6,643,476 Total net lending to customers (ex repos) (a) 78,711,986 Current accounts 39,880,692 Term deposits 40,857,105 Valuation adjustments 106,929 Subtotal customer deposits (ex repos, ex Treasury) 80,844,726 Retail Commercial paper 135,640 Mediation loans (1) 5,665,993 Securitizations sold to third parties 56,381 Marketable securities distributed through the branch network (2) 466,598 Tax collection accounts 661,944 Total customer deposits (b) 87,831,282 GAP (a-b) (9,119,296) LTD (a/b) 89.6% (1) ICO and EIB funding directly received for loans to companies. (2) Including convertible notes, preference shares and subordinated debt distributed via the branch network 10

11 Main bussiness retail funds (Amounts in euros thousand) Demand deposits (ex-treasury) and Other accounts 39,880,692 Time deposits 40,857,105 Repos Other accounts and valuation adjustments 106,929 Subtotal customer deposits and General Government (ex - treasury) 80,844,726 Retail commercial paper 135,640 ICO Mediation loans (1) 5,665,993 Securitizations sold to third parties 56,381 Marketable securities distributed through the branch network (2) 466,598 Tax collection accounts 661,944 Asset repos Total Retail Funds 87,831,282 (1) ICO and EIB funding directly received for loans to companies. 2. Including convertible notes, preference shares and subordinated debt distributed via the branch network. 11

12 Main business funds managed (Amounts in euros thousand y %) Customer deposit: 88,057,232 Valuation adjustments (+/-) 106,929 Total customer deposits 88,164,161 Unadjusted debt certificates including bonds: 16,727,434 Bonds and other securities outstanding 15,788,322 Commercial paper 939,112 Valuation adjustments (+/-) 165,653 Total debt certificates including bonds 16,893,087 Subordinated liabilities 2,062,544 Total on-balance sheet funds (a) 107,119,792 Mutual funds 10,776,325 Asset portfolio management 1,460,256 Pensions funds 5,189,833 Insurance premiums 2,326,161 Total other intermediated funds (b) 19,752,574 Total funds managed (a+b) 126,872,366 12

13 Main business lending to customers (Amounts in euros thousand) Total gross lending to customers (ex repos) 81,024,537 Retail banking 61,731,064 Households and private banking 21,960,998 SMEs and self-employed 39,770,066 Wholesale banking 19,293,473 Valuation adjustments (+/-) (2,312,415) Total net lending to customers (ex repos) 78,712,122 Main business Yields & Costs (Amounts in euros thousand) Average balance Distribution (%) Income or expense Average rate (%) Financial system 6,948, , Loans and discounts (a) 80,067, ,086, Securities portfolio 29,333, , Other earning assets 183, , TOTAL EARNING ASSETS (b) 116,532, ,279, Other assets 11,618, TOTAL ASSETS 128,151, ,279, Financial system 31,455, , Customer funds (c) 87,913, , Demand and savings accounts 42,193, , Time deposits 41,707, , Repos 4,012, (0.17) Marketable debt securities & other 18,512, , Other interest-bearing liabilities 273, , Net intra-segment funding (24,835,976) (19.38) (289,597) 2.34 TOTAL INTEREST-BEARING FUNDS (d) 113,319, , Other funds 4,957, Equity 9,874, TOTAL FUNDS 128,151, , Customer spread (a-c) 2.34 Spread (b-d) 1.93 Net interest income

14 2. Business 2.2 Real estate and related business 14

15 Real estate and related business ratios Foreclosures and credit risk associated with the real estate sector (real estate promotions, construction, buying/selling or renting of real estate assets, housing) in Spain, in foreign subsidiaries and real estate holdings. Business volume Net lending to customers (ex Repos) 15,642,864 Total assets managed 28,148,714 Retail funds 260,788 Balance sheet RWA 26,277,875 Average Total Assets 28,320,569 Real estate and related business (1S16 in thousand and %) Risk management Net foreclosed assets 11,150,094 Net non-performing loans 7,296,206 NPA coverage ratio 35.3% Total impairments and provisions 10,056,257 Results Net interest margin (42,342) Gross operating income (45,097) Net Operating Income (Pre-provision Profit) (167,026) Profit before tax (675,352) Profit after tax (483,173) 15

16 Real estate and related business income statement (Amounts in euros thousand) Variation % = Net interest income (79,292) (42,342) (46.6) + Share of the profit or (-) loss of investments in subsidaries, joint ventures and associates (40,200) (20,688) (48.5) + Net fees and commissions 4,465 3,567 (20.1) ± Gains or losses on financial assets and liabilities (net) - 15,800 > ±Net other operating income (3,029) (1,433) (52.7) =Gross operating income (118,056) (45,097) (61.8) -Administrative expenses 98, , Depreciation & amortisation 12,359 11,976 (3.1) = Net Operating Income (Pre-provision Profit) (229,228) (167,026) (27.1) -Impairment losses and provisions 520, ,815 (10.1) ±Gains / (Losses) on assets held for sale (net) 18,977 (40,511) > =Profit before tax (730,709) (675,352) (7.6) ± Income tax (207,302) (192,179) (7.3) =Profit/ Loss attributed to the controlling company (523,407) (483,173) (7.7) 16

17 Real estate and related business balance sheet (Amounts in euros thousand) ASSETS Cash and cash balances at central banks 3,080 Financial assets held for trading 5,151 Financial assets designated at fair value through profit or loss - Available-for-sale financial assets 100,790 Loans and receivables 15,642,864 Deposits at credit institutions - Of which interbank deposits - Loans and advances to other debtors 15,642,864 Fixed Income - Held-to-maturity investments - Derivatives Hedge accounting - Fair value changes of the hedged items in portfolio hedge of interest rate risk - Investments in subsidaries, joint ventures and associates 553,506 Assets under reinsurance and insurance contracts - Tangible assets 856,112 Intangible assets 1,121 Tax assets 544,898 Other assets 987,453 Non-current assets and disposal groups classified as held for sale 9,453,739 Total assets 28,148,714 LIABILITIES Financial liabilities held for trading - Financial liabilities designated at fair value through profit or loss - Financial liabilities measured at amortised cost 392,396 Liabilities of credit institutions 221,577 Of which interbank deposits 1,318 Deposits from other creditors 127,314 Debt certificates including bonds - Subordinated liabilities - Other financial liabilities 43,505 Derivatives Hedge accounting - Fair value changes of the hedged items in portfolio hedge of interest rate risk - Liabilities under insurance and reinsurance contracts - Provisions 13,943 Tax liabilities 27,668 Share capital repayable on demand - Other liabilities 41,921 Liabilities included in disposal groups classified as held for sale - Net funding intra-segments (1) 22,352,382 Total liabilities 22,828,310 EQUITY Total equity 5,297,779 Other comprehensive income and accumulated 13,042 Minority interests (non-controlling interests) 9,583 Net asset value 5,320,404 Total liabilities and equity 28,148,714 (1) The real estate and related businesses assets are funded with the surplus retail and wholesale deposits of the Main Business through a transfer pricing system under which a financing cost is charged to the real estate and related business. The financing cost includes the market interest rate plus a liquidity premium and, in the case of real estate developers and non performing assets, the cost is the same as that of senior debt issuances of the entity. 17

18 3. Banco Popular Group

19 Consolidated income statement* (Amounts in euros thousand) Variation % Interest income 1,836,121 1,528,938 (16.7) - Interest expenses 710, ,861 (36.8) - Expenses on share capital repayable on demand = Net interest income 1,125,917 1,080,077 (4.1) + Dividend income 8,285 5,956 (28.1) + Share of the profit or (-) loss of investments in subsidaries, joint ventures and associates 34,285 65, Net fees and commissions 293, ,704 (5.6) ± Gains or losses on financial assets and liabilities (net) 319, ,056 (39.9) ± Exchange differences (net) 22,577 19,610 (13.1) + Other operating income 71,172 68,855 (3.3) - Other operating expenses 59, ,519 > + Assets under reinsurance and insurance contracts income 20,170 13,270 (34.2) - Assets under reinsurance and insurance contracts expenses 26,454 13,862 (47.6) = Gross operating income 1,809,344 1,589,856 (12.1) - Administrative expenses 776, ,205 (1.5) Staff expenses 463, ,838 (1.0) Other administrative expenses 313, ,367 (2.2) - Depreciation 67,868 70, = Net Operating Income (Pre-provision Profit) 964, ,555 (21.8) - Provisions or (-) reversal of provisions (24,310) (2,972) (87.8) - Impairment or (-) reversal of impairment on financial assets not measured at fair value through profit or loss 537, ,026 (3.3) = Net business income 451, ,501 (47.4) - Impairment or (-) reversal of impairment on investments in subsidaries, joint ventures and associates Impairment or (-) reversal of impairment on non financial assets 8,616 (2,001) > + Gains or (-) losses on derecognition of non financial assets, net 66,371 79, Negative goodwill recognised in profit or loss Profit or (-) loss from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations (259,281) (210,552) (18.8) = Profit before tax 249, ,315 (56.7) - Income tax 62,208 14,741 (76.3) +Profit/ Loss from discontinued operations (net) = Consolidated profit for the year 187,684 93,574 (50.1) - Profit/ Loss attributed to minority interests (266) (340) 27.8 = Profit/ Loss attributed to the controlling company 187,950 93,914 (50.0) *The Group is formed by a parent bank (Grupo Banco Popular), six Banks which operate in Spain, United States and Portugal and a financial group in Mexico in which it holds a 25% stake. Additionally, and amongst others, the Group owns real estate companies and two insurance companies. Finally, the Group has other subsidiaries and holds shares in other entities which complement the banking business. 19

20 Quarterly consolidated income statement (Amounts in euros thousand) II III IV I II Interest income 900, , , , ,730 - Interest expenses 336, , , , ,113 - Expenses on share capital repayable on demand = Net interest income 563, , , , ,617 + Dividend income 7,764 1,595 3, ,251 + Share of the profit or (-) loss of investments in subsidaries, joint ventures and associates 18,794 19,121 (5,984) 24,319 41,390 + Net fees and commissions 146, , , , ,571 ± Gains or losses on financial assets and liabilities (net) 131, ,586 88,318 98,899 93,157 ± Exchange differences (net) 10,799 11,582 11,405 7,711 11,899 + Other operating income 40,164 38,679 86,370 37,414 31,441 - Other operating expenses 35,242 29, ,847 30,629 87,890 + Assets under reinsurance and insurance contracts income 6,527 6,648 6,423 6,696 6,574 - Assets under reinsurance and insurance contracts expenses 9,084 7,400 7,265 7,073 6,789 = Gross operating income 881, , , , ,221 - Administrative expenses 388, , , , ,368 Staff expenses 233, , , , ,040 Other administrative expenses 154, , , , ,328 - Depreciation 34,657 35,006 34,879 35,099 34,997 = Net Operating Income (Pre-provision Profit) 458, , , , ,856 - Provisions or (-) reversal of provisions 246 (7,784) (2,934) (2,425) (547) - Impairment or (-) reversal of impairment on financial assets not measured at fair value through profit or loss 249, , , , ,692 = Net business income 208, ,719 (348,225) 213,790 23,711 - Impairment or (-) reversal of impairment on investments in subsidaries, joint ventures and associates Impairment or (-) reversal of impairment on non financial assets 33,943 6,907 (37,171) (23,618) 21,617 + Gains or (-) losses on derecognition of non financial assets, net 71,952 4,907 56,597 10,711 68,654 + Negative goodwill recognised in profit or loss Profit or (-) loss from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations (119,591) (69,930) (5,040) (123,874) (86,678) = Profit before tax 127, ,789 (259,497) 124,245 (15,930) - Income tax 30,861 33,864 (87,822) 30,634 (15,893) +Profit/ Loss from discontinued operations (net) = Consolidated profit for the year 96,548 89,925 (171,675) 93,611 (37) - Profit/ Loss attributed to minority interests 34 (161) 929 (181) (159) = Profit/ Loss attributed to the controlling company 96,514 90,086 (172,604) 93,

21 Group s quarterly Yields & Costs (Rates anualized) II III IV I II Distributiobutiobutiobution Distri- Distri- Distri- Distribution Rate Rate Rate Rate Financial system Loans and discounts (a) Securities portfolio Other earning assets TOTAL EARNING ASSETS (b) Other assets Rate TOTAL ASSETS Financial system Customer funds (c) Demand and savings accounts Time deposits Repos Marketable debt securities & other Other interest-bearing liabilities TOTAL INTEREST-BEARING FUNDS (d) Other funds Equity TOTAL FUNDS Customer spread (a-c) Spread (b-d) Net interest margin

22 Group s personnel and general expenses (Amounts in euros thousand) Distributions % Variation % Personnel expenses: 463, ,838 (1.0) Wages and salaries 340, ,808 (1.8) Social security charges 90,666 90, Other personnel expenses 15,604 16, Pensions 16,541 16, General expenses 313, ,367 (2.2) Rents and commons services 68,470 71, Communications 11,754 13, Maintenance of premises equipment 31,192 27,520 (11.8) IT and other technical expenses 65,269 64,310 (1.5) Stationery and office supplies 2,483 3, Technical reports and legal expenses 28,602 27,361 (4.3) Advertising and publicity 11,617 8,278 (28.7) Insurance 4,994 2,682 (46.3) Security and fund transport services 8,460 8, Travel 5,005 4,981 (0.5) VAT and others 56,825 53,377 (6.1) Other general expenses 18,511 21, Total 776, ,205 (1.5)

23 Balance sheet Group (Amounts in euros thousand) ,12, months Variation % 12 months ASSETS Cash and cash balances at central banks 2,736,042 5,465,713 3,086,541 (43.5) 12.8 Financial assets held for trading 1,417,601 1,285,883 1,770, Financial assets designated at fair value through profit or loss 547, , , Available-for-sale financial assets 28,934,997 25,193,155 27,678, (4.3) Loans and receivables 107,961, ,076, ,149, Deposits at credit institutions 4,845,879 4,301,561 6,380, Of which interbank deposits 739, , , (41.1) Loans and advances to other debtors 101,292,789 99,637, ,998, (0.3) Fixed Income 1,822,394 1,136, ,250 (32.3) (57.7) Held-to-maturity investments Derivatives Hedge accounting 595, , ,718 (28.5) (46.8) Fair value changes of the hedged items in portfolio hedge of interest rate risk 229, , , Investments in subsidaries, joint ventures and associates 1,891,513 1,794,009 2,058, Assets under reinsurance and insurance contracts 16,494 17,524 18, Tangible assets 1,722,492 1,697,785 1,671,497 (1.5) (3.0) Intangible assets 2,529,152 2,571,879 2,590, Tax assets 3,469,802 3,604,163 3,883, Other assets 1,856,735 1,685,928 1,681,739 (0.2) (9.4) Non-current assets and disposal groups classified as held for sale 8,740,045 9,045,928 9,453, Total assets 162,647, ,649, ,227, LIABILITIES Financial liabilities held for trading 1,103,398 1,043,063 1,731, Financial liabilities designated at fair value through profit or loss 621, , ,524 (0.5) (4.0) Financial liabilities measured at amortised cost 144,489, ,508, ,547, (2.0) Liabilities of credit institutions 34,439,177 33,376,386 33,229,046 (0.4) (3.5) Of which interbank deposits 2,476,851 2,728,852 1,756,229 (35.6) (29.1) Deposits from other creditors 89,994,100 88,335,415 88,291,475 - (1.9) Debt certificates including bonds 16,790,597 15,989,048 16,893, Subordinated liabilities 2,158,810 2,066,951 2,062,544 (0.2) (4.5) Other financial liabilities 1,106, ,724 1,071, (3.2) Derivatives Hedge accounting 2,037,580 2,013,974 2,341, Fair value changes of the hedged items in portfolio hedge of interest rate risk Liabilities under insurance and reinsurance contracts 489, , , Provisions 433, , ,780 (1.7) (13.2) Tax liabilities 461, , , Share capital repayable on demand Other liabilities 511, , , Liabilities included in disposal groups classified as held for sale Total liabilities 150,147, ,135, ,495, (1.1) EQUITY Total equity 12,892,041 12,719,992 15,084, Capital, reserves and retained earnings 12,746,478 12,656,947 14,990, Profit attributed to the controlling company 187, ,432 93,914 (10.9) (50.0) Interim dividends (-) (42,387) (42,387) - (100.0) (100.0) Other comprehensive income and accumulated (409,697) (221,743) (368,199) 66.0 (10.1) Minority interests (non-controlling interests) 18,146 16,376 15,959 (2.5) (12.1) Net asset value 12,500,490 12,514,625 14,732, Total liabilities and equity 162,647, ,649, ,227,

24 Risk Management Performance* (Amounts in euros thousand) Variation Amount % Non performing loans Initial balance 20,172,032 18,339,525 (1,832,507) (9.1) Additions 1,938,394 1,803,635 (134,759) (7.0) Recoveries 2,988,933 1,654,284 (1,334,649) (44.7) Other variations (1) 300,643 - (300,643) (100.0) Net variation (749,896) 149, ,247 > % increase (3.7) Write-offs (256,707) (1,063,018) (806,311) > Final balance 19,165,429 17,425,858 (1,739,571) (9.1) % Coverage with guarantees Credit risk premium (%) (0.05) - Asset impairment Financial assets 513, ,054 3, Credit risk 505, ,665 (841) (0.2) Of which: write-offs recovered 76,092 46,205 (29,887) (39.3) Investments 7,712 12,389 4, Non-financial assets and property 220, ,479 (44,468) (20.1) Total 734, ,533 (40,632) (5.5) *Including doubtful off-balance sheet risks and country risk and the related risk allowance (1) Non-performing loans 100% provisioned 24

25 Solvency Group (Amounts in euros thousand) Capital Reserves Of which additional distributable items Minority interest Capital deductions ( ) ( ) Ordinary Tier 1 Capital Phase-in CET 1 ratio (%) 12,45% 15,25% MCNs Convertible perpetual debt Deducciones aditional capital ( ) ( ) Tier 1 capital Tier 1 capital ratio (%) 12,45% 15,25% Tier 2 capital Tier 2 capital ratio (%) 0,62% 0,65% Total Capital Total capital ratio (%) 13,07% 15,90% Total risk weighted assets of which credit risk of which operational risk of which market risk Additional distributable items Leverage Tier 1 capital Exposure Phase-in Basel III Leverage Ratio (%) (1) 6,12% 7,15% Equity (Amounts in euros thousand) Capital & Reserves Valuation adjustments Minority interests Net asset value Balance at 31/12/ ,719,992 (221,743) 16,376 12,514,625 Capital increase (1) 2,417, ,417,914 Variation in treasury stock (102,423) - - (102,423) Gain on treasury stock transactions (3,780) - - (3,780) Actuarial differences - (11,100) - (11,100) Remuneration of mandatory convertible debentures (41,782) - - (41,782) Consolidation operations and other (net) (77) 409 Corporate actions Value adjustments - (135,356) - (135,356) Net profit at 30 June ,914 - (340) 93,574 Dividends paid/announced in Balance at 30/06/ ,084,321 (368,199) 15,959 14,732,081 (1) Script-dividend 25

26 Banco Popular share Share price data Number of shares outstanding (thousands) 2,119,329 4,196,858 Closing price ( ) (1) Market capitalization (thousand ) (2) 9,210,603 4,830,584 Maximum price ( ) Minimum price ( ) Trading volume Daily average number of shares traded (thousands) 18,561 27,453 Daily average trading volume (thousand ) 79,365 54,437 Stock market ratios Net earnings per share ( ) (3) Dividend per share paid in the year ( ) Book value per share diluted ( ) (4) Price/Earnings (annualized) Price/Book value (1) Share price prior periods adjusted by rights issue effect. (2) Calculated on shares outstanding. (3) Calculated on average number of shares. (4) Includes the mandatory convertible bonds and fully diluted shares. Stock markets In the months of April and May the markets showed a positive behaviour, thanks to the more favourable economic data released on both sides of the Atlantic, and to the oil price continuing its upward trend, leaving behind the minimum marked in January. However, risks which were mainly political in nature provoked a downturn in the markets during the month of June. At the end of June, the victory of the Brexit campaign in the United Kingdom referendum regarding their membership in the European Union increased the uncertainty. This caused an immediate impact on the financial markets and beyond. The stock markets were affected and indices suffered heavy losses on a global level. On the other hand, the British Prime Minister David Cameron announced his resignation, and the international agencies alerted about the economic consequences. Information about the share On the 26th of May, Popular communicated the decision of the Board of Directors to increase the capital by an amount of 2,505,551,441.25, through monetary contributions and with preferential subscription rights for shareholders. The total demand received, of 3,401.3 million euros, represented % of the amount of the rights issue. In this transaction, 2,004,441,153 new shares were put into circulation on the 23rd of June. At the end of the first half of 2016, Banco Popular s share capital was composed of 4,196,858,092 ordinary shares with a nominal value of 0.50 each. Banco Popular s share is included in the Madrid Stock Exchange general index (Índice General de la Bolsa de Madrid), weighing 0.49%, and in the Ibex-35 index with a weight of 1.17%. On the 30th of June, the market capitalization of Popular stood at 4,830,583,664.

27 Basis of presentation and accounting principles and standards Accounting principles and policies and va luation standards The Group s accounting policy is based on the accounting principles set forth in Note 15 to the 2015 consolidated financial statements, which included most notably the following: A) Impairment of the value of assets: The treatment of financial assets differs from that of all other assets, as discussed below. Coverage is envisaged for the losses on financial assets, provided that they are based on objective evidence. Specific and general allowances are booked for customer-attributable credit-loss risk, and specific allowances for country risk. The specific allowance covers the impairment of assets individually identified as damaged based on an individual or collective analysis using a statistical approach according to the age of the default. In addition, the general allowance for collective value adjustments for unreported losses incurred reflects the inherent loss incurred according to the nature of each risk, estimated statistically, that is pending assignment to specific transactions. The Bank of Spain has stipulated models and methodology conforming to IFRS for the calculation of the foregoing allowances. In order to check that the methods used at the Group to estimate credit losses based on Bank of Spain requirements are in line with those set out in IAS 39, the Group has developed a methodology that uses the information provided by the internal models and other aspects observed within the AQR framework to enable it to make quarterly estimates of loss incurred based on the risk parameters of PD (probability of default), LGD (loss given default) and EAD (exposure at default). These parameters are obtained from the historic information of the IRB framework items and are subject to subsequent specific PIT processing. The results obtained from the loss incurred calculation using this methodology reveal an amount of provisions that does not differ significantly from the provisions estimated based on Bank of Spain Circular 4/2004. The regulations require strict treatment in the classification of doubtful balances in customer transactions, since default in the payment of one installment triggers the classification as non-performing of the entire transaction. For all other assets, including goodwill, impairment is deemed to exist if and when the book value of the assets exceeds their recoverable amount. In the case of goodwill, an impairment test must be performed at least once a year, since goodwill is not systematically amortized, and the appropriate writedown is booked if there is evidence of impairment. B) Income: B1) Fees: Under IFRS the treatment of fees collected or paid differs depending on whether they are compensation for a service rendered or a cost incurred, or are remuneration additional to the interest rate on the transaction. The former are recognized as income when the service is rendered or the cost is incurred, and the latter are accrued over the term of the transaction. B2) Interest and dividends: Interest is recognized on an accrual basis by the effective interest rate method, and dividends are recorded when declared. 27

28 C) Financial instruments are classified for valuation purposes and recorded as follows: - Instruments classified in the trading portfolio, including financial derivatives, are recorded at fair value, with changes taken to the income statement. - Loans and discounts and held-to-maturity investments are recorded at their amortized cost. - Available-for-sale financial assets are valued at fair value, and changes in value are recorded in net worth until realized, at which time they are recognized in the income statement. - Substantially all financial liabilities are valued at amortized cost. D) Non-financial and intangible assets and inventories. These are valued at cost. For the valuation of tangible assets, the Banco Popular Group has not, on a general basis, taken the option provided in IFRS to revalue them, and accordingly they are presented in the balance sheet at cost restated, where appropriate, pursuant to the applicable enabling legislation, net of accumulated depreciation. E) Non-current assets held for sale. Recorded in this caption are the assets bought or foreclosed. Disclaimer This financial report has been prepared by Banco Popular solely for purposes of information. It may contain estimates and forecasts with respect to the future development of the business and to the financial results of the Banco Popular Group, which stem from the expectations of the Banco Popular Group and which, by their very nature, are exposed to factors, risks and circumstances that could affect the financial results in such a way that they might not coincide with such estimates and forecasts. These factors include, but are not restricted to, (i) changes in interest rates, exchange rates or any other financial variable, both on the domestic as well as on the international securities markets, (ii) the economic, political, social or regulatory situation, and (iii) competitive pressures. In the event that such factors or other similar factors were to cause the financial results to differ from the estimates and forecasts contained in this report, or were to bring about changes in the strategy of the Banco Popular Group, Banco Popular does not undertake to publicly revise the content of this report. This financial report contains summarised information and in no case shall its content constitute an offer, invitation or recommendation to subscribe or acquire any security whatsoever, to make or cancel any kind of investments, nor it is intended to serve as a basis for any contract or commitment whatsoever. Its content shall not be considered as any kind of advice. 28

29 MARs (Alternative Performance Measures APMs) APM Definition (1) Account Information (2) Management Information (3) Section of the Annual Management Report (4) MONITORING OF RESULTS Net interest income Total operating income Net operating income PROFITABILITY AND EFFICIENCY Average asset performance Return on Assets (ROA) Return On Risk- Weighted Assets (RORWA) The APMs in this section show the main margins of the income statement. Difference between financial income and financial costs. Mainly it is the difference between what is charged on loans and paid on deposits. The net interest income plus: net fees and commissions; dividends charged for shareholdings in other companies; the results of the entities assessed through the shareholding; the result of financial activities (net); exchange rate differences and other operating income and expenses. Gross income minus operating expenses (staff expenses,other administrative expenses and depreciation). It is what best reflects the evolution of the bank's business. Profit/loss accounting entries: Interest income; Interest expenses. Profit/loss accounting entries: Net interest income, Dividend income, Fee and commission income, Fee and commission expenses, Gains or (-) losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net, Gains or (-) losses on financial assets and liabilities held for trading, net, Gains or (-) losses on financial assets and liabilities designated at fair value through profit or loss, net, Gains or (-) losses from hedge accounting, net, Exchange differences [gain or (-) loss], net, Other operating income, (Other operating expenses), Assets under reinsurance and insurance contracts income (Assets under reinsurance and insurance contracts expenses). Profit/loss accounting entries: Total operating Income, Staff expenses, Other administrative expenses, Depreciation. The APMs in this section show the most representative measures of profitability and efficiency. It is the average rate of return on and is calculated as the ratio between Interest Income and Average Total Assets It is the relationship between Consolidated Profit/Loss and Average Total Assets. This ratio shows the return obtained on the entity's assets. Ratio which relates the Net Profit of an entity and Average Risk- Weighted Assets. Profit/loss accounting entry: Interest income. Profit/loss accounting entry: Assets under reinsurance and insurance contracts income. Profit/loss accounting entry: Assets under reinsurance and insurance contracts income. Average total Assets: Average value of Accounting Assets at month end, plus the average daily balance of temporary Asset Acquisitions and Loans and Receivables. Average total Assets: Average value of Accounting Assets at month end, plus the average daily balance of temporary Asset Acquisitions and Loans and Receivables. Total Risk-Weighted Assets: sum of the bank's assets, weighted according to the risk of each asset's behaviour in accordance with regulatory guidelines, calculated as the average of the reference period. (Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms)

30 APM Definition (1) Account Information (2) Management Information (3) Section of the Annual Management Report (4) Return On Tangible Equity (ROTE) Operating efficiency Customer spread INFORMATION PER SHARE Book value of the share Earnings per share Price / book value It is the relationship between Net Profit Attributable to the Group and Tangible Equity. This ratio indicates the return that shareholders can obtain on funds invested in the entity. It is the relationship between operating costs (personnel expenses and other general administrative expenses) and Gross Income (all income earned by the entity). It is the difference between the average rate which the bank charges on its customers' loans and advances and the average rate a bank pays on customer deposits. Profit/loss accounting entry: Assets under reinsurance and insurance contracts income. Profit/loss accounting entries: Administrative Expenses, Total operating income. The APMs in this section show information related to each share. Obtained by dividing Equity between the final number of diluted shared and expressed in euros. The diluted earnings per share is calculated by dividing the net profit attributable to the Group in the year between the final number of diluted shares. It shows the relationship between the market capitalisation and Equity Balance sheet accounting entry: Equity Profit/loss accounting entry: Profit or (-) loss for the year Balance sheet accounting entry: Equity Tangible Equity: The result of reducing the Group s own funds by the goodwill and other intangibles with the same criteria used for the calculation of regulatory capital. For business ROTE, own funds are calculated on the basis of the 2016 CET1 forecast. Average Interest Rate of Loans and Advances to Customers: Annualised percentage between accounting products of Loans and Advances to Customers in relation to the average balance of Loans and Advances to Customers Average Interest Rate of Customer Funds: Annualised percentage between accounting costs of Customer Funds in relation to the average balance of Customer Funds. Final number of shares in circulation (diluted): number of shares in circulation during the year, adjusted to take into account the potential dilutive effect of stock options, warrants and convertible debt outstanding at year end, excluding the average number of treasury shares held in the same period. Final number of shares in circulation (diluted): number of shares in circulation during the year, adjusted to take into account the potential dilutive effect of stock options, warrants and convertible debt outstanding at year end, excluding the average number of treasury shares held in the same period. Market capitalisation of the share, calculated on the shares in circulation

31 APM Definition (1) Account Information (2) Management Information (3) Section of the Annual Management Report (4) RISK MANAGEMENT Non-performing balances Ratio Coverage ratio of non-performing loans without amortised loans Coverage ratio of non-performing loans and amortised loans Coverage ratio with guarantees Loan to Deposit Ratio (LTD) The APMs of this section show the main ratios used in monitoring risks. Ratio between the sum of the balances of doubtful assets plus the balance of doubtful contingent exposures divided by the total risks. Proportion of provisions made with respect to the balance qualified as doubtful assets plus the balance of doubtful contingent exposures. It does not include the balances transferred to write-offs Proportion of provisions made with respect to the balance qualified as doubtful assets plus the balance of doubtful contingent exposures. It includes the balances transferred to write-offs Proportion of provisions made plus the sureties received with respect to the balance of doubtful assets plus the balance of doubtful contingent exposures. This ratio shows the relationship between financing granted to customers and funds raised from customers Balance sheet accounting entries: Balances of doubtful assets and the balance of doubtful contingent exposures. Profit/loss accounting entry: Provisions for insolvency. Balance sheet accounting entry: Total Non-performing loans. Profit/loss accounting entry: Provisions for insolvency, including the amortised risks, and balance sheet accounting entry: Total non-performing loans plus total amortised risks. Profit/loss accounting entry: Provisions for insolvency, including the amortised risks, and balance sheet accounting entry: Total non-performing loans plus total amortised risks. Balance sheet entry: Loans and advances to customers excluding temporary asset acquisitions. Total Risks: balances of assets on the balance sheet plus the risks and contingent commitments subject to credit risk. Total value of the sureties: balance which covers the doubtful and non-performing risks' balances. Funds raised from customers: customer funds excluding the temporary Transfer of assets and including other liabilities raised through the branch office network. (1) Conceptual definition of APM and the variables in its calculation. (2) Variables which make up the APMs whose book balances are reflected in the income statements and the balance sheet. (3) Variables which make up the APMs whose balances are not reflected directly in the income statements and the balance sheet. (4) Section of the Annual Management Report which reflects the use of APMs in the management of the entity