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 in accordance with the European Securities and Markets Authority (ESMA) guidelines, published on October 5, 2015 (ESMA/2015/1415en) as well as the statement published by the ESMA on May 20, 2020 (ESMA 32-63-972), about implications of the COVID-19 outbreak on the half-yearly financial reports. The guidelines mentioned before are aimed at promoting the usefulness and transparency of APMs included in prospectuses or regulated information in order 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).

Reconciliation of the Financial Statements of the BBVA Group

Below is the reconciliation between the consolidated Financial Income Statements and the consolidated management income statements, shown throughout this report, for 2020 and 2019.

The main difference between them is the treatment of the results generated by the portion of the business in the United States that is subject to the sale agreement reached on November 16, 2020. As a result, in the management income statements, the results of the Group are presented by consolidating the said business for sale in continuity, compared to the treatment of the income statement of the consolidated Financial Statements in which, according to the applicable accounting regulation, and since the transaction represents a sale agreement that includes a large section of the businesses that constitute a significant geographical area for the Group (IFRS 5.32 and Appendix A), it has been considered as a “discontinued operation”. Based on this consideration, the results obtained by the business subject to the sale are presented under a single line of the income statements - "Profit (loss) after tax from discontinued operations" - (IFRS 5.33) and the income statements of the consolidated Financial Statements for the comparative periods presented have been re-expressed (IFRS 5.34).This line of the consolidated Financial Statements includes the successive goodwill impairments in the United States made in the last quarter of 2019 and the first quarter of 2020 that, in the management income statements are collected in a management margin called “United States goodwill impairment and corporate operations”.

Additionally, there is a difference between both approaches that derives from the materialization of the agreement with Allianz that, in the Financial Income Statements is included with its gross impact on the line "Gains (losses) from non-current assets and disposable groups of items classified as held for sale not qualifying as discontinued operations" and its corresponding tax effect on the line "Tax expense or income related to profit or loss from continuing operations” while, for management purposes, it has been classified as “Corporate Operation” for its net amount, being included in the same management margin mentioned above.

CONCILIATION OF THE BBVA GROUP'S INCOME STATEMENTS. 2020 (MILLIONS OF EUROS)

Consolidated income statement Adjustments Management income statement
2020 2020
Interest and other income 22,389 3,534 25,923 Financial income
Interest expense (7,797) (1,325) (9,122) Financial expenses
NET INTEREST INCOME 14,592 2,209 16,801 Net interest income
Dividend income 137 (*)
Share of profit or loss of entities accounted for using the equity method (39) (*)
Fee and commission income 5,980 677 6,657 Fees and commissions income
Fee and commission expense (1,857) (183) (2,040) Fees and commissions expenses
4,123 494 4,616 Net fees and commissions
Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net 139
Gains (losses) on financial assets and liabilities held for trading, net 777
Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net 208
Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net 56
Gains (losses) from hedge accounting, net 7
Exchange differences, net 359
1,546 145 1,692 Net trading income
Other operating income 492
Other operating expense (1,662)
Income from insurance and reinsurance contracts 2,497
Expense from insurance and reinsurance contracts (1,520)
(95) (40) (135) Other operating income and expenses
GROSS INCOME 20,166 2,808 22,974 Gross income
Administration costs (7,799) (10,755) Operating expenses (**)
Personnel expense (4,695) (955) (5,650) Personnel expenses
Other administrative expense (3,105) (507) (3,612) Other administrative expenses
Depreciation and amortization (1,288) (205) (1,494) Depreciation
11,079 1,140 12,219 Operating income
Provisions or reversal of provisions (746) 2 (744) Provisions or reversal of provisions
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification (5,179) (729) (5,908) Impairment on financial assets not measured at fair value through profit or loss
NET OPERATING INCOME 5,153 413 5,566
Impairment or reversal of impairment of investments in joint ventures and associates (190)
Impairment or reversal of impairment on non-financial assets (153)
Gains (losses) on derecognition of non - financial assets and subsidiaries, net (7)
Negative goodwill recognized in profit or loss -
Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations 444
94 (435) (341) Other gains (losses)
PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS 5,248 (22) 5,225 Profit/(loss) before tax
Tax expense or income related to profit or loss from continuing operations (1,459) 73 (1,385) Income tax
PROFIT (LOSS) AFTER TAX FROM CONTINUING OPERATIONS 3,789 51 3,840 Profit/(loss) after tax
Profit (loss) after tax from discontinued operations (1,729) 1,729 -
- (1,780) (1,780) Goodwill impairment in the United States and corporate operations
PROFIT FOR THE YEAR 2,060 - 2,060 Profit/(loss) for the year
ATTRIBUTABLE TO MINORITY INTEREST (NON-CONTROLLING INTERESTS) (756) - (756) Non-controlling interests
ATTRIBUTABLE TO OWNERS OF THE PARENT 1,305 - 1,305 Net attributable profit/(loss)

(*) Included within the Other operating income and expenses of the Management Income Statements

(**) Depreciations included.

CONCILIATION OF THE BBVA GROUP'S INCOME STATEMENTS. 2019 (MILLIONS OF EUROS)

Consolidated income statement Adjustments Management income statement
2019 2019
Interest and other income 27,762 5,880 33,642 Financial income
Interest expense (11,972) (3,546) (15,518) Financial expenses
NET INTEREST INCOME 15,789 2,335 18,124 Net interest income
Dividend income 153 (*)
Share of profit or loss of entities accounted for using the equity method (42) (*)
Fee and commission income 6,786 736 7,522 Fees and commissions income
Fee and commission expense (2,284) (205) (2,489) Fees and commissions expenses
4,502 531 5,033 Net fees and commissions
Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net 186
Gains (losses) on financial assets and liabilities held for trading, net 419
Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net 143
Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net (98)
Gains (losses) from hedge accounting, net 55
Exchange differences, net 581
1,286 98 1,383 Net trading income
Other operating income 639
Other operating expense (1,943)
Income from insurance and reinsurance contracts 2,890
Expense from insurance and reinsurance contracts (1,751)
(55) (22) (77) Other operating income and expenses
GROSS INCOME 21,522 2,941 24,463 Gross income
Administration costs (8,769) (11,902) Operating expenses (**)
Personnel expense (5,351) (989) (6,340) Personnel expenses
Other administrative expense (3,418) (545) (3,963) Other administrative expenses
Depreciation and amortization (1,386) (214) (1,599) Depreciation
11,368 1,193 12,561 Operating income
Provisions or reversal of provisions (614) (3) (617) Provisions or reversal of provisions
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification (3,552) (521) (4,073) Impairment on financial assets not measured at fair value through profit or loss
NET OPERATING INCOME 7,202 670 7,872
Impairment or reversal of impairment of investments in joint ventures and associates (46)
Impairment or reversal of impairment on non-financial assets (128)
Gains (losses) on derecognition of non - financial assets and subsidiaries, net (5)
Negative goodwill recognized in profit or loss -
Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations 23
(156) 0 (155) Other gains (losses)
PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS 7,046 670 7,716 Profit/(loss) before tax
Tax expense or income related to profit or loss from continuing operations (1,943) (110) (2,053) Income tax
PROFIT (LOSS) AFTER TAX FROM CONTINUING OPERATIONS 5,103 560 5,663 Profit/(loss) after tax
Profit (loss) after tax from discontinued operations (758) 758 -
- (1,318) (1,318) Goodwill impairment in the United States and corporate operations
PROFIT FOR THE YEAR 4,345 - 4,345 Profit/(loss) for the year
ATTRIBUTABLE TO MINORITY INTEREST (NON-CONTROLLING INTERESTS) (833) - (833) Non-controlling interests
ATTRIBUTABLE TO OWNERS OF THE PARENT 3,512 - 3,512 Net attributable profit/(loss)

(*) Included within the Other operating income and expenses of the Management Income Statements

(**) Depreciations included.

Below is the reconciliation between the balance sheets of the consolidated Financial Statements and those of the management as of 12-31-2020 and 12-31-2019, based on which the financial information of this report is provided. The main difference between both of them is the classification in the consolidated balance sheets of the sale transactions of BBVA Paraguay (closed on January 22) and part of the BBVA Group business in the United States (expected to close by the middle of the 2021 financial year) as Non-current Assets held for Sale7. On the other hand, the management balance sheets as of 12-31-2020 and 12-31-2019 are presented in continuity, being the assets and liabilities of these two transactions included in each corresponding balance sheet line.

7 As of 12-31-2019, only BBVA Paraguay is classified as Non-current Assets held for Sale and as of 12-31-2020, BBVA Paraguay and BBVA USA and the rest of Group’s companies included in the sale agreement signed with PNC are classified under this balance sheet line.

CONCILIATION OF THE BBVA GROUP'S BALANCE SHEET. 2020 (MILLIONS OF EUROS)

Consolidated balance sheet of the financial statements Adjustments Consolidated management balance sheet
31-12-20 31-12-20
Cash, cash balances at central banks and other demand deposits 65,520 11,784 77,303
Financial assets held for trading 108,257 821 109,078
Non-trading financial assets mandatorily at fair value through profit or loss 5,198 13 5,211
Financial assets designated at fair value through profit or loss 1,117 - 1,117
Financial assets at fair value through accumulated other comprehensive income 69,440 4,976 74,416
Financial assets at amortized cost 367,668 62,592 430,260
Loans and advances to central banks and credit institutions 20,784 37 20,821
Loans and advances to customers 311,147 53,859 365,006
Debt securities 35,737 8,697 44,434
Investments in subsidiaries, joint ventures and associates 1,437 (0) 1,437
Tangible assets 7,823 807 8,629
Intangible assets 2,345 1,952 4,297
Other assets (*) 107,373 (82,944) 24,428
Total assets 736,176 - 736,176
Financial liabilities held for trading 86,488 98 86,587
Other financial liabilities designated at fair value through profit or loss 10,050 - 10,050
Financial liabilities at amortized cost 490,606 74,480 565,085
Deposits from central banks and credit institutions 72,806 4,707 77,513
Deposits from customers 342,661 66,460 409,122
Debt certificates 61,780 2,811 64,591
Other financial liabilities 13,358 501 13,860
Liabilities under insurance and reinsurance contracts 9,951 - 9,951
Other liabilities (**) 89,061 (74,578) 14,483
Total liabilities 686,156 - 686,156
Non-controlling interests 5,471 - 5,471
Accumulated other comprehensive income (14,356) - (14,356)
Shareholders’ funds 58,904 - 58,904
Total equity 50,020 - 50,020
Total liabilities and equity 736,176 - 736,176

(*) "Derivatives - hedge accounting", "Fair value changes of the hedged items in portfolio hedges of interest rate risk", "Joint ventures and associates", "Insurance and reinsurance assets", "Tax assets", "Other assets", and "Non-current assets and disposal groups classified as held for sale".

(**) "Derivatives - hedge accounting", "Fair value changes of the hedged items in porftolio hedges of interest rate risk", "Provisions", "Tax liabilities", "Other liabilities", and "Liabilities included in disposal groups classified as held for sale".

CONCILIATION OF THE BBVA GROUP'S BALANCE SHEET. 2019 (MILLIONS OF EUROS)

Consolidated balance sheet of the financial statements Adjustments Consolidated management balance sheet
31-12-19 31-12-19
Cash, cash balances at central banks and other demand deposits 44,303 363 44,666
Financial assets held for trading 101,735 0 101,735
Non-trading financial assets mandatorily at fair value through profit or loss 5,557 - 5,557
Financial assets designated at fair value through profit or loss 1,214 - 1,214
Financial assets at fair value through accumulated other comprehensive income 61,183 2 61,186
Financial assets at amortized cost 439,162 1,268 440,430
Loans and advances to central banks and credit institutions 17,924 0 17,924
Loans and advances to customers 382,360 1,205 383,565
Debt securities 38,877 63 38,940
Investments in subsidiaries, joint ventures and associates 1,488 - 1,488
Tangible assets 10,068 9 10,077
Intangible assets 6,966 4 6,970
Other assets (*) 26,060 (1,647) 24,413
Total assets 697,737 - 697,737
Financial liabilities held for trading 88,680 0 88,680
Other financial liabilities designated at fair value through profit or loss 10,010 - 10,010
Financial liabilities at amortized cost 516,641 1,542 518,182
Deposits from central banks and credit institutions 54,700 22 54,722
Deposits from customers 384,219 1,467 385,686
Debt certificates 63,963 40 64,004
Other financial liabilities 13,758 13 13,771
Liabilities under insurance and reinsurance contracts 10,606 - 10,606
Other liabilities (**) 16,875 (1,542) 15,333
Total liabilities 642,812 - 642,812
Non-controlling interests 6,201 - 6,201
Accumulated other comprehensive income (10,226) - (10,226)
Shareholders’ funds 58,950 - 58,950
Total equity 54,925 - 54,925
Total liabilities and equity 697,737 - 697,737

(*) "Derivatives - hedge accounting", "Fair value changes of the hedged items in portfolio hedges of interest rate risk", "Joint ventures and associates", "Insurance and reinsurance assets", "Tax assets", "Other assets", and "Non-current assets and disposal groups classified as held for sale".

(**) "Derivatives - hedge accounting", "Fair value changes of the hedged items in porftolio hedges of interest rate risk", "Provisions", "Tax liabilities", "Other liabilities", and "Liabilities included in disposal groups classified as held for sale".

Constant exchange rates

When comparing two dates or periods in this management report, the impact of changes in the exchange rates against the euro of the currencies of the countries in which BBVA operates is sometimes excluded, assuming that exchange rates remain constant. This is done for the amounts in the income statement by using the average exchange rate against the euro in the most recent period for each currency of the countries where the Group operates, and applying it to both periods; for amounts in the balance sheet and activity, the closing exchange rates in the most recent period are used.

Adjusted profit/(loss) for the year

Explanation of the formula: The adjusted profit/(loss) for the year is the profit/(loss) for the year from the Group’s consolidated income statement, excluding those extraordinary items that, from a management point of view are defined at any given moment.

Relevance of its use: This measure is commonly used, not only in the banking sector, for homogeneous comparison purposes.

Adjusted profit/(loss) for the year

Millions of euros Jan.-Dec.20 Jan.-Dec.19 Jan.-Dec.18
+ Annualized profit/(loss) after tax from ongoing operations 3,789 5,103 5,523
+ Annualized profit/(loss) after tax from discontinued operations (1,729) (758) 704
= Annualized profit/(loss) for the year 2,060 4,345 6,227
- The United States goodwill impairment (2,084) (1,318) -
- Profit of BBVA Chile - - 93
- Net capital gains from the sale of BBVA Chile - - 633
- Net capital gain from the assurance transaction 304 - -
= Adjusted profit/(loss) for the year 3,840 5,663 5,501

Adjusted net attributable profit

Explanation of the formula: The adjusted net attributable profit is the net attributable profit from the Group’s consolidated income statement, excluding those extraordinary items that, from a management point of view are defined at any given moment.

Relevance of its use: This measure is commonly used, not only in the banking sector, for comparison purposes.

Adjusted net attributable profit

Millions of euros Jan.-Dec.20 Jan.-Dec.19 Jan.-Dec.18
+ Annualized net attributable profit/(loss) 1,305 3,512 5,400
- The United States goodwill impairment (2,084) (1,318) -
- Net attributable profit of BBVA Chile - - 64
- Net capital gains from the sale of BBVA Chile - - 633
- Net capital gain from the assurance transaction 304 - -
= Adjusted net attributable profit/(loss) 3,084 4,830 4,703

Book value per share

The book value per share determines the value of a company on its books for each share held. It is calculated as follows:

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

Explanation of the formula: The figures for both ‘’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 "dividend-option" at the closing dates on which it was agreed to deliver this type of dividend prior to the publication of the Group´s results. 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 options" explained above. Both the numerator and the denominator take into account period-end balances.

Relevance of its use: It shows 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

31-12-20 31-12-19 31-12-18
Numerator (millions of euros) + Shareholders' funds 58,904 58,950 57,333
+ Dividend-option adjustment - - -
+ Accumulated other comprehensive income (14,356) (10,226) (10,223)
Denominator (million euros) + Number of shares outstanding 6,668 6,668 6,668
+ Dividend-option - - -
- Treasury shares 14 13 47
= Book value per share (euros / share) 6.70 7.32 7.12

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. It is calculated as follows:

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’’8 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 prior to the publication of the Group´s results. 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 period-end balances.

Relevance of its use: It shows 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

31-12-20 31-12-19 31-12-18
Numerator (millions of euros) + Shareholders' funds 58,904 58,950 57,333
+ Dividend-option adjustment - - -
+ Accumulated other comprehensive income (14,356) (10,226) (10,223)
- Intangible assets 2,345 6,966 8,314
- Intangible assets classified as Non-Current Assets Held for Sale 1,952 4 -
Denominator (millions of euros) + Number of shares outstanding 6,668 6,668 6,668
+ Dividend-option - - -
- Treasury shares 14 13 47
= Tangible book value per share (euros / share) 6.05 6.27 5.86

8 For the purposes of the calculation, intangible assets classified under the non-current assets held for sale are also considered.

Dividend yield

This is the remuneration given to the shareholders in the last twelve calendar months, divided by the closing price for the period. It is calculated as follows:

Σ 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 "dividend option".

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

Dividend yield

31-12-20 31-12-19 31-12-18
Numerator (euros) Σ Dividends 0.16 0.26 0.25
Denominator (euros) Closing price 4.04 4.98 4.64
= Dividend yield 4.0% 5.2% 5.4%

Adjusted earning per share

The adjusted earning per share takes the earning per share calculated in accordance to the criteria established in the IAS 33 “Earnings Per Share” and takes into account the same adjustments made in the net attributable profit to calculate the adjusted net attributable profit, previously defined in these alternative performance measures.

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. It is calculated as follows:

Non - performing loans
Total credit risk

Explanation of the formula: ‘’Non-performing loans’’ include those related to loans and advances to customers (gross) and those related to contingent risk, excluding the non-performing loans of credit institutions and securities. ‘’Total credit risk’’ includes both pending and contingent risk. Their calculation is based on the headings in the first table of ”Credit risk” within the “Risk management” section 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

31-12-20 31-12-19 31-12-18
Numerator (millon euros) NPLs 16,681 16,730 17,087
Denominator (millon euros) Credit Risk 421,432 441,964 433,799
= Non-Performing Loans (NPLs) ratio 4.0% 3.8% 3.9%

NPL coverage ratio

This ratio reflects the degree to which the impairment of non-performing loans has been covered in the accounts via value adjustments. It is calculated as follows:

Provisions
Non - performing loans

Explanation of the formula: ‘’Non-performing loans’’ include those related to lending activity and those related to contingent risk, excluding non-performing loans from credit institutions and securities. ‘’Provisions’’ are allowances, for both loans and advances to customer and contingent risk. Their calculation is based on the headings in the first table of “Credit Risk” within the “Risk management” section 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 value adjustments.

NPL coverage ratio

31-12-20 31-12-19 31-12-18
Numerator (millions of euros) Provisions 13,593 12,817 12,493
Denominator (millions of euros) NPLs 16,681 16,730 17,087
= NPL coverage ratio 81% 77% 73%

Cost of risk

This ratio indicates the current situation and changes in credit-risk quality through the annual cost in terms of impairment losses (accounting loan-loss provisions, included in the “impairment on financial assets not measured at fair value through profit or loss” line) of each unit of loans and advances to customers (gross). It is calculated as follows:

Annualized loan - loss provisions
Average loans and advances to customers (gross)

Explanation of the formula: ‘’Annualized loan-loss provisions’’ are calculated by accumulating and annualizing the loan-loss provisions of each month of the period under analysis, to standardize the comparison between different periods. For example, loan-loss provisions for six months (180 days) are divided by 180 to obtain daily loan-loss provisions and multiplied by 365 to obtain the annualized figure. This calculation uses the calendar days of the period under consideration.

‘’Loans and advances to customers (gross)’’ refers to the portfolio of financial assets at amortized cost of the Group’s consolidated balance sheet. The average of loans and advances to customers (gross) is calculated by using the average of the period-end balances of each month of the period analyzed plus the previous month.

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 through the cost over the year.

Cost of risk

31-12-20 31-12-19 31-12-18
+ Annualized loan-loss provisions from ongoing operations 5,160 3,462 3,662
+ Annualized loan-loss provisions from discontinued operations 729 521 222
Numerator (Millions of euros) = Annualized loan-loss provisions 5,889 3,983 3,884
Denominator (Millions of euros) Average loans and advances to customers (gross) 390,868 390,494 392,037
= Cost of risk 1.51% 1.02% 0.99%

Efficiency ratio

This measures the percentage of gross income consumed by an entity's operating expenses. It is calculated as follows:

Operating expenses
Gross income

Explanation of the formula: Both ‘’operating expenses’’ and ‘’gross income’’ are taken from the Group’s consolidated income statement. Operating expenses are the sum of the administration costs (personnel expenses plus other administrative expenses) plus depreciation. Gross income is the sum of net interest income, net fees and commissions, net trading income dividend income, share of profit or loss of entities accounted for using the equity method, and other operating income and expenses. For a more detailed calculation of this ratio, the graphs on “Results” section of this report should be consulted, one of them with calculations with figures at current exchange rates and another with the data at constant exchange rates.

Relevance of its use: This ratio is generally used in the banking sector.

Efficiency ratio

Jan.-Dec.2020 Jan.-Dec.2019 Jan.-Dec.2018
+ Operating expenses from ongoing operations (9,088) (10,155) (10,054)
+ Operating expenses from discontinued operations (1,668) (1,748) (1,648)
Numerator (Millions of euros) = Operating expenses (10,755) (11,902) (11,702)
+ Gross income from ongoing operations 20,166 21,522 20,936
+ Gross income from discontinued operations 2,808 2,941 2,731
Denominator (Millions of euros) = Gross income 22,974 24,463 23,667
= Efficiency ratio 46.8% 48.7% 49.4%

Adjusted ROE

The adjusted ROE (return on equity) ratio measures the return obtained on an entity's shareholders' funds plus accumulated other comprehensive income. It is calculated as follows:

Annualized adjusted net attributable profit
Average shareholders'funds + Average accumulated other comprehensive income

Explanation of the formula: The numerator is the adjusted net attributable profit previously defined in these alternative performance measures.

‘’Average shareholders' funds’’ are the weighted moving average of the shareholders' funds at the end of each month of the period analyzed, 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 prior to the publication of the Group´s results.

‘’Average accumulated other comprehensive income’’ is the moving weighted average of accumulated other comprehensive income, which is part of the equity on the Entity's balance sheet and is calculated in the same way as average shareholders’ funds (above).

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.

Adjusted ROE

Jan.-Dec.2020 Jan.-Dec.2019 Jan.-Dec.2018
Numerator (millions of euros) Adjusted net attributable profit/(loss) 3,084 4,830 4,703
Denominator (millions of euros) + Average shareholder's funds 57,626 58,888 55,885
+ Average accumulated other comprehensive income (12,858) (9,921) (9,800)
= Adjusted ROE 6.9% 9.9% 10.2%

Adjusted ROTE

The Adjusted ROTE (return on tangible equity) ratio measures the return on an entity's shareholders' funds, plus accumulated other comprehensive income, and excluding intangible assets. It is calculated as follows:

Annualized adjusted net attributable profit
Average shareholders' funds + Average accumulated other comprehensive income - Average intangible assets

Explanation of the formula: The numerator (annualized adjusted net attributable profit) and the items in the denominator ‘’average intangible assets’’ and ‘’average accumulated other comprehensive income’’ are the same items and are calculated in the same way as explained for the adjusted ROE.

‘’Average intangible assets’’ are the intangible assets on the balance sheet, including goodwill and other intangible assets9. The average balance is calculated in the same way as explained for shareholders' funds in ROE.

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.

ROTE Adjusted

Jan.-Dec.2020 Jan.-Dec.2019 Jan.-Dec.2018
Numerator (millons of euros) Adjusted net attributable profit/(loss) 3,084 4,830 4,703
Denominator (millons of euros) + Average shareholder's funds 57,626 58,888 55,885
+ Average accumulated other comprehensive income (12,858) (9,921) (9,800)
- Average intangible assets 4,754 8,303 8,298
- Average intangible assets classified as Non-Current Asset Held for Sale 253 2 36
= Adjusted ROTE 7.8% 11.9% 12.5%

9 For the purposes of the calculation, intangible assets classified under the non-current assets held for sale are also considered.

Adjusted ROA

The adjusted ROA (return on assets) ratio measures the return obtained on an entity's assets. It is calculated as follows:

Annualized adjusted profit for the year
Average total assets

Explanation of the formula: The numerator is the annualized adjusted profit/(loss) for the year previously defined in these alternative performance measures.

‘’Average total assets’’ are the moving weighted average of the total assets of the Group’s consolidated balance sheet at the end of each month of the period under analysis.

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.

Adjusted ROA

Jan.-Dec.2020 Jan.-Dec.2019 Jan.-Dec.2018
Numerator (millions of euros) Adjusted profit/(loss) for the year 3,840 5,663 5,501
Denominator (millons of euros) Average total assets 729,833 692,797 678,662
= Adjusted ROA 0.53% 0.82% 0.81%

Adjusted RORWA

The adjusted RORWA (return on risk-weighted assets) ratio measures the return obtained on an entity's assets. It is calculated as follows:

Annualized profit for the year
Average risk - weighted assetsrage total assets

Explanation of the formula: The numerator is the annualized adjusted profit/(loss) for the year previously defined in these alternative performance measures.

‘’Average risk-weighted assets’’ (RWA) is the moving weighted average of the risk-weighted assets at the end of each month of the period under analysis.

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.

Adjusted RORWA

Jan.-Dec.2020 Jan.-Dec.2019 Jan.-Dec.2018
Numerator (millions of euros) Adjusted profit/(loss) for the year 3,840 5,663 5,501
Denominator (millons of euros) Average RWA 359,774 361,359 353,199
= Adjusted RORWA 1.07% 1.57% 1.56%

Other customer funds

This includes off-balance sheet funds, these are, mutual funds, pension funds and other off-balance sheet funds.

Explanation of the formula: It is the period-end sum on a given date of the mutual funds, pension funds and other off-balance sheet funds; as displayed in the table on “Balance sheet and business activity” section 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 and other off-balance sheet funds.

Other customer funds

Millions of euros 31-12-20 31-12-19 31-12-18
+ Mutual funds 64,869 68,639 61,393
+ Pension Funds 36,215 36,630 33,807
+ Other off-balance sheet funds 1,863 2,534 2,914
= Other customer funds 102,947 107,803 98,114