Alternative performance measures (APMs)

BBVA presents its results in accordance with the International Financial Reporting Standards (EU-IFRS). However, it also considers that some alternative performance measures (APMs) provide useful additional financial information that should be taken into account when evaluating performance. These APMs are also used when making financial, operational and planning decisions within the Entity. The Group firmly believes that they give a true and fair view of its financial information. These APMs are generally used in the financial sector as indicators for monitoring the assets, liabilities and economic and financial situation of entities.

BBVA Group’s APMs are given below. They are presented n accordance with the European Securities and Markets Authority (ESMA) guidelines, published on October 5, 2015 (ESMA/2015/1415en). These guidelines are aimed at promoting the usefulness and transparency of APMs included in prospectuses or regulated information to protect investors in the European Union. In accordance with the indications given in the guidelines, BBVA Group’s APMs.

  • Include clear and readable definitions of the APMs (paragraphs 21-25).
  • Disclose the reconciliations to the most directly reconcilable line item, subtotal or total presented in the financial statements of the corresponding period, separately identifying and explaining the material reconciling items (paragraphs 26-32).
  • Are standard measures generally used in the financial industry, so their use provides comparability in the analysis of performance between issuers (paragraphs 33-34).
  • Do not have greater preponderance than measures directly stemming from financial statements (paragraphs 35-36).
  • Are accompanied by comparatives for previous periods (paragraphs 37-40).
  • Are consistent over time (paragraphs 41-44).

Book value per share

The book value per share determines the value of the company on its books for each share held by the shareholder:

Shareholders’ funds + Accumulated other comprehensive income
Number of shares outstanding - Treasury shares

Explanation of the formula: The figures for both the shareholders’ funds and accumulated other comprehensive income are taken from the balance sheet. Shareholders’ funds are adjusted to take into account the execution of the “dividendoption” at the closing dates on which it was agreed to deliver this type of dividend before publication. The denominator includes the final number of outstanding shares excluding own shares (treasury shares). The denominator is also adjusted to include the capital increase resulting from the execution of the “dividend-option” explained above. Both the numerator and the denominator take into account specific balances.

Relevance of its use: It is important to know the company’s book value for each share issued. It is a generally used ratio, not only in the banking sector but also in others.

Book value per share

31-12-17 31-12-16 31-12-15
Numerator (millon euros) + Shareholders’ funds 55,136 52,821 50,639
+ Dividend-option adjustment - - -
+ Accumulated other comprehensive income (8,792) (5,458) (3,349)
Denominator (millon euros) + Number of shares outstanding 6,668 6,567 6,367
+ Dividend-option - - -
- Treasury shares 13 7 39
= Book value per share (euros / share) 6.96 7.22 7.47

Tangible book value per share

The tangible book value per share determines the value of the company on its books for each share held by shareholders in the event of liquidation.

Shareholders’ funds + Accumulated other comprehensive income - Intangible assets
Number of shares outstanding - Treasury shares

Explanation of the formula: The figures for shareholders’ funds, accumulated other comprehensive income and intangible assets are all taken from the balance sheet. Shareholders’ funds are adjusted to take into account the execution of the “dividend-option” at the closing dates on which it was agreed to deliver this type of dividend before publication. The denominator includes the final number of shares outstanding excluding own shares (treasury shares). The denominator is also adjusted to include the result of the capital increase resulting from the execution of the “dividend options” explained above. Both the numerator and the denominator take into account specific balances.

Relevance of its use: It is important to know the company’s book value for each share issued, after deducting intangible assets. It is a generally used ratio, not only in the banking sector but also in others

Tangible book value per share

31-12-17 31-12-16 31-12-15
Numerator (millon euros) + Shareholders’ funds 55,136 52,821 50,639
+ Dividend-option adjustment - - -
+ Accumulated other comprehensive income (8,792) (5,458) (3,349)
- Intangible assets 8,464 9,786 10,052
Denominator (millon euros) + Number of shares outstanding 6,668 6,567 6,367
+ Dividend-option - - -
- Treasury shares 13 7 39
= Tangible book value per share (euros / share) 5.69 5.73 5.88

Dividend yield

This is the remuneration given to the shareholders in the last twelve calendar months divided into the closing price for the period

∑Dividend per share over the last twelve months
Closing price

Explanation of the formula: The remuneration per share takes into account the gross amounts per share paid out over the last twelve months, both in cash and through the flexible remuneration system called the “dividend option”.

Relevance of its use: This ratio is generally used by analysts, shareholders and investors for companies and entities that are traded on the stock market. It compares the dividend paid by a company every year with its market price.

Dividend yield

31-12-17 31-12-16 31-12-15
Numerator (euros) ∑ Dividends 0.30 0.37 0.37
Denominator (euros) Closing price 7.11 6.41 6.74
= Dividend yield 4.2% 5.8% 5.5%

Non-performing loan (NPL) ratio

This is the ratio between the risks classified for accounting purposes as non-performing loans and the total credit risk balance for customers and contingent risks.

Non-performing loans
Total credit risk

Explanation of the formula:Both non-performing loans and credit risk include contingent liabilities, now called collateral given. Their calculation is based on the headings in the first table on the section risk management of this report.

Relevance of its use: This is one of the main indicators used in the banking sector to monitor the current situation and changes in credit risk quality, and specifically the relationship between risks classified in the accounts as non-performing loans and the total balance of credit risk, with respect to customers and contingent liabilities.

Non-Performing Loans (NPLs) ratio

31-12-17 31-12-16 31-12-15
Numerator (million euros) NPLs 20,492 23,595 25,996
Denominator (million euros) Total credit risk 461,303 480,720 482,518
= Non-Performing Loans (NPLs) ratio 4.4% 4.9% 5.4%

NPL coverage ratio

It reflects the degree to which the impairment of non-performing loans has been covered in the accounts via loan-loss provisions.

Impairment on financial assets (net)
NPLs

Explanation of the formula: Non-performing loans include contingent liabilities, now called collateral given. Their calculation is based on the headings in the first table on the section risk management of this report.

Relevance of its use: This is one of the main indicators used in the banking sector to monitor the situation and changes in the quality of credit risk, reflecting the degree to which the impairment of non-performing loans has been covered in the accounts via loan-loss provisions.

NPL coverage ratio

31-12-17 31-12-16 31-12-15
Numerator (million euros) Impairment on financial assets (net) 13,319 16,573 19,405
Denominator (million euros) NPLs 20,492 23,595 25,996
= NPL coverage ratio 65% 70% 74%

Efficiency ratio

It measures the percentage of gross income consumed by an entity’s operating expenses.

Operating expenses
Gross income

Explanation of the formula: Operating expenses are the sum of personnel expenses, plus administrative expenses, plus depreciation.

Relevance of its use: This ratio is generally used in the banking sector. It is also a ratio linked to one of the Group’s six Strategic Priorities.

Efficiency ratio

2017 2016 2015
Numerator (million euros) Operating expenses (12,500) (12,791) (12,317)
Denominator (million euros) Gross income 25,270 24,653 23,680
= Efficiency ratio 49.5% 51.9% 52.0%

ROE

The ROE ratio (return on equity) measures the return obtained on an entity’s shareholders’ funds.

Annualized net attributable profit
Average shareholders’ funds

Explanation of the formula:
Annualized net attributable profit: it measures the net profit attributable to the Group after deducting the results from non-controlling interests. If the metric is presented on a date before the close of the fiscal year, the numerator must be annualized. If extraordinary items (results from corporate operations) are included in the net attributable profit for the months covered, they are eliminated from the figure before it is annualized, and then added to the metric once it has been annualized.

Average shareholders’ funds: These are shareholders’ funds adjusted to take into account the result of the “dividendoption” at the closing dates before publication on which it was agreed to distribute this type of dividend. Average shareholders’ funds are a moving weighted average of shareholders’ funds over the last twelve calendar months.

Relevance of its use: This ratio is very commonly used not only in the banking sector but also in other sectors to measure the return obtained on shareholders’ funds.

In addition, a derivative of this metric may be reported, such as ROE not including the results from corporate operations. In this case the numerator will not include the results from corporate operations.

ROE

2017 2016 2015
Numerator (million euros) Annualized net attributable profit 3,519 3,475 2,642
Denominator (million euros) Average shareholders’ funds 54,649 51,947 50,767
= ROE 6.4% 6.7% 5.2%

ROTE

The ROTE ratio (return on tangible equity) measures the return on an entity’s shareholders’ funds, excluding intangible asset.

Annualized net attributable profit
Average shareholders’ funds - Average intangible assets

Explanation of the formula:
Annualized net attributable profit: calculated in the same way as ROE above.

Average shareholders’ funds: calculated in the same way as ROE above.

Average intangible assets: intangible assets on the balance sheet, including goodwill and other intangible assets. The average balance is calculated in the same way as for shareholders’ funds.

Relevance of its use: This metric is generally used not only in the banking sector but also in other sectors to measure the return obtained on shareholders’ funds not including intangible assets.

A derivative of this metric may also be reported, such as ROTE not including the results from corporate operations. In this case the numerator does not include the results from corporate operations.

ROTE

2017 2016 2015
Numerator (million euros) Annualized net attributable profit 3,519 3,475 2,642
Denominator (million euros) + Average shareholders’ funds 54,649 51,947 50,767
- Average intangible assets 9,073 9,819 9,634
= ROTE 7.7% 8.2% 6.4%

ROA

The ROA ratio (return on assets) measures the return obtained on an entity’s assets.

Annualized profit for the year
Average total assets

Explanation of the formula:
Annualized profit for the year: If the metric is presented on a date before the close of the fiscal year, the numerator must be annualized. If extraordinary items (results from corporate operations) are included in the net attributable profit for the months covered, they are eliminated from the figure before it is annualized, and then added to the metric once it has been annualized.

Average total assets: A moving weighted average of the total assets in the last twelve calendar months.

Relevance of its use: This ratio is generally used not only in the banking sector but also in other sectors to measure the return obtained on assets

A derivative of this metric may also be reported, such as ROA not including the results from corporate operations. In this case the numerator does not include the results from corporate operations.

ROA

2017 2016 2015
Numerator (million euros) Annualized profit for the year 4,762 4,693 3,328
Denominator (million euros) Average total assets 702,511 735,636 716,379
= ROA 0.68% 0.64% 0.46%

RORWA

The RORWA ratio (return on risk-weighted assets) measures the accounting return obtained on average risk-weighted assets.

Annualized profit for the year
Average risk-weighted assets

Explanation of the formula:
Annualized profit for the year: calculated in the same way as ROA above.

Average risk-weighted assets (RWA): a moving weighted average of RWA over the last twelve calendar months.

Relevance of its use: This ratio is generally used in the banking sector to measure the return obtained on RWA.

A derivative of this metric may also be reported, such as RORWA not including the results from corporate operations. In this case the numerator does not include the results from corporate operations.

RORWA

2017 2016 2015
Numerator (million euros) Annualized profit for the year 4,762 4,693 3,328
Denominator (million euros) Average RWA 375,589 394,356 380,844
= RORWA 1.27% 1.19% 0.87%

Other customer funds

It includes off-balance sheet funds (mutual funds, pension funds and other off-balance-sheet funds) and customer portfolios

Explanation of the formula: Sum of mutual funds + pension funds + other off-balance-sheet funds + customer portfolios; as displayed in the last table on the section balance sheet and business activity of this report.

Relevance of its use: This metric is generally used in the banking sector, as apart from on-balance sheet funds, financial institutions manage other types of customer funds, such as mutual funds, pension funds, etc.

Other customer funds (Million euros)

31-12-17 31-12-16 31-12-15
+ Mutual funds 60,939 55,037 54,419
+ Pension Funds 33,985 33,418 31,542
+ Other off-balance-sheet funds 3,081 2,831 3,786
+ Customer portfolios 36,901 40,805 42,074
= Other customer funds 134,906 132,092 131,822