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)

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

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)

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

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

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

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:

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

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:

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

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:

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

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:

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

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:

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

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:

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

Efficiency ratio

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

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

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:

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

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:

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

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:

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

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:

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

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