2013 Annual Results D. Francisco Gómez Martín CEO Madrid, January 31 st, 2014
Disclaimer This presentation has been prepared by Banco Popular Español 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 variables, 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 presentation, 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 presentation. This presentation contains summarised information and may contain unaudited information. In no case shall its content constitute an offer, invitation or recommendation to subscribe or acquire any security whatsoever, nor is it intended to serve as a basis for any contract or commitment whatsoever. 2
Agenda 1. Key highlights 2. Results analysis 3. Commercial activity 4. Risk management 5. Liquidity & solvency 6. Conclusions & outlook 3
Key highlights 2013 Sound recurrence in revenues Effort to adapt to new economic and regulatory environment High pre-provision profit, exceeding 4Q12 level (+12%) and still the best in the sector Net profit of 602M before precautionary provisions Implementing actions to prepare the Bank for supervisory assessments: Precautionary reclassification in the quarter of doubtful loans still performing to anticipating the NPL peak High provisioning effort Strategic management of the ALCO portfolio Improved liquidity LTD ratio improved to 110% Lowered reliance on ECB by 15.5Bn in 2013 Institutional investors confidence, 4.4Bn of new issuances last year Strong Capital position Entry of new shareholders in 4Q13 for 450M Core capital EBA 11.21% Leverage ratio of 6.08%, highlighting the high quality of our capital and positioning us as the leader in the sector 4
Agenda 1. Key highlights 2. Results analysis 3. Commercial activity 4. Risk management 5. Liquidity & solvency 6. Conclusions & outlook 5
Financial Highlights (, Million) 12M-12 12M-13 Dif. 12M13 vs. 12M12 ( M) Dif. 12M13 vs. 12M12 (%) Net Interest Income 2.719 2.447-272 -10,0% Commissions 794 770-24 -3,0% Trading & others 265 490 224 84,5% Gross Margin 3.778 3.707-71 -1,9% General expenses and Amortizations 1.761 1.753-9 -0,5% Pre-Provision Profit 2.016 1.954-63 -3,1% Ordinary provsions 5.703 2.062-3.245-56,9% Provisions for Loans, real estate assets and others 5.984 2.324-3.265-54,6% Write-offs recovery -282-261 20-7,3% Capital Gains 195 964 769 > Profit before taxes -3.492 855 3.951 > Net Profit -2.461 602 2.786 > 4Q13 Precautionary provisions net of taxes 277 Net Profit 325 NPLs non Real Estate related ratio 5,39% 7,53% 214 p.b. NPLs Ratio 8,98% 14,27% 529 p.b. O/W Non-Performing Loans 8,16% 11,50% 334 p.b. O/W Doubtful loans (performing) 0,82% 2,77% 195 p.b. Coverage ratio over total loans and RE assets 12,68% 13,54% 86 p.b. Efficiency ratio 42,48% 43,18% 70 p.b. Loans/deposits ratio 121% 110% -11 p.p. Core Capital EBA 10,06% 11,21% 115 p.b. Leverage Ratio 6,08% 6
Financial Highlights (, Million) 1Q-13 2Q-13 3Q-13 4Q-13 Net Interest Income 593 660 604 591 Commissions 190 198 195 187 Trading & others 45 143 193 109 Gross Margin 827 1.001 991 888 General expenses and Amortizations 422 433 431 466 Pre-Provision Profit 405 568 560 421 Ordinary provsions 449 531 495 588 Provisions for Loans, real estate assets and others 490 620 550 663 Write-offs recovery -41-89 -56-75 Capital Gains 195 47 9 713 Profit before taxes 151 83 74 545 Net Profit 104 66 57 375 4Q13 Precautionary provisions net of taxes 277 Net Profit 98 NPLs Non Real Estate related Ratio 5,90% 6,09% 6,34% 7,53% NPLs Ratio 9,94% 10,84% 11,84% 14,27% O/W Non-Performing Loans 9,02% 10,10% 10,61% 11,50% O/W Subjective Doubtful loans 0,92% 0,74% 1,23% 2,77% Coverage Ratio over total loans and RE assets 12,99% 12,85% 12,90% 13,54% Efficiency ratio 46,65% 39,32% 39,59% 48,33% Loans/deposits ratio 123% 118% 115% 110% Core Capital EBA 10,05% 10,28% 10,95% 11,21% 7
Strategic management of the ALCO portfolio Net Interest Income Evolution Causal analysis 3Q13-4Q13 (, million) (, million) 1.74% 1.65% 1.58% 1.52% 1.68% 1.57% 1.59% -10.0% +9 Commercial management 2,719 2,447 2012 2013 3Q13 Spreads management Business volumes NII after commercial evolution ALCO portfolio NII over ATAs (%) 8
Commercial gap reduced 50% during the year and voluntary reduction of ECB reliance by 15.5 Bn Commercial gap (, million) (, million) ECB total exposure -8,694 M -3,907 M -15.500 M 17,696 15,562 12,909 9,002 18.900 1,700 17.652 18.800 2,952 5,100 4Q12 2Q13 3Q13 4Q13 ALCO portfolio evolution (, million) -4,976 M 19.995 23.622 19.087 8,079 8,547 6,285 14.111 8.900 17,200 400 14,700 13,700 8,500 3.400 2,155 1,245 4Q12 1Q13 2Q13 3Q13 4Q13 11,448 15,543 12,802 6,925 7,186 ECB outstanding LTRO 4Q12 2Q13 3Q13 4Q13 Corporate debt and others Sovereign debt 9
1.92 1.86 1.72 We continue to lower the cost of deposits. Strong potential for improvement in the 2014 maturities. Time deposits cost evolution Quarterly average (%) 3.33 3.26 1.70 3.39 3.36 3.38 3.48 3.22 3.37 3.02 2.72 1.18 0.81 0.55 0.38 3.26 2.24 2.97 2.75 1.98 1.87 2.37 0.36 0.29 0.37 0.34 1.60 1.44% Dec 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Stock cost Frontbook cost Reference euribor Maturities profile and repricing of time deposits and commercial paper Customer funds average cost evolution (sight + term deposits) (, million) Data as of 31/12/2013 (%) 2.00 2.31 2.29 1.99 2.50 2.49 2.42 2.28 2.22 2.16 2.11 2.07 2.04 3.3% 30.2% 16,697 15.8% 8.9% 11.7% 15,076 1.62 7,897 4,469 5,876 1Q14 2Q14 3Q14 4Q14 > 1 year Time deposits & CP maturities Cost of the maturities (% ) Over total maturities 10
Further improved customer margins thanks to our commercial management which also maintains the Bank s leadership in profitability (%) Customer spread +10 b.p. 2.31 2.35 2.45 2.37 2.47 4Q12 1Q13 2Q13 3Q13 4Q13 (%) Net Interest Margin comparison 1.59 1.32 1.24 1.18 1.17 1.13 1.03 Bank 1 Bank 2 Average ex POP Bank 3 Bank 4 Bank 5 Banks: Santander, Bankinter, Sabadell, Caixabank and BBVA 11
Fees and commissions remain stable, despite an inauspicious environment for business. Good performance in Trading & Other revenues Fees & Commissions (, Million) -2.6% -3.0% Guarantees +7% YoY Funds & Others+17% YoY (, Million) Trading & Other Revenues - 17 M extraordinary expenses +84.5% +103.2% 12
High level of gross income with a level of recurrence that leads the industry (, Million) Total revenues (%) 2013 Revenues composition -1.9% 3,778 3,707 2012 2013 Net interest income + commissions Trading & others Banks: Bankinter,Sabadell y Caixabank Last information available 13
Slight reduction in costs over 2012 despite corporate transactions. A 2.2% like-for-like improvement (, Million) General expenses 1.761 1.753-3,7% Amortizations General expenses 484 466 431 Personnel expenses Branch evolution Employees evolution 2,475-231 2,260 2,244-474 16,501 16,132 16,027 4Q12 3Q13 4Q13 4Q12 3Q13 4Q13 14
High pre-provision profit that remains over 2Bn even in the worst crisis scenarios. Leader in recurring revenues (, Billion) Pre-provision profit evolution 1.9 2.0 2.0 2011 2012 2013 Historical proforma data included Pastor 2013 Pre-provision profit ex Trading & other over loans comparison (%) 1.57% 1.13% 0.52% 0.56% POP Bank 1 Bank 2 Bank 3 Banks: Bankinter, Caixabank y Sabadell Lastest information available 15
Significant provisioning effort to adapt to the current economic and regulatory situation (, Billion) Provisions for Loans & Others (, Billion) Provisions for Real Estate Assets 2,594 887 4,629 1,536 1,355 1,183 2012 2013 2012 2013 P&L Capital P&L Capital 16
Proven ability to generate capital gains 2013 Ordinary Capital Gains 2013 Extraordinary capital gains 261 M : Write-off recoveries 41 M : Real Estate assets 710 M : Real Estate Servicing 133 M : Recovery Business unit sale 57 M : Joint venture in ATM business 28 M : Reinsurance Portugal business sale 26 M : Joint venture Pastor Vida 2 M : sale & lease-back Capital Gains evolution (Euro Million) Total 269 501 638 648 477 1.258 17
Strategic partnership on the management of the non core unit The partner will hold 51% and Banco Popular will retain 49% Exclusive partnership agreement for 10 years, with option to extend Structure Impact Banco Popular 49% 51% Kennedy Wilson & Värde Partners Sale Price: 815M 715M at time of sale 100M earn out Servicing company of the Non-Core Business Real Estate Foreclosed assets management Real estate non-performing loan management: Developer: NPLs and substandard Retail Mortgages: NPLs 18
To optimize the management and speed up the divestment in NPAs (1) Strategic rationale of the Deal 1 To take advantage of the knowledge and expertise of a specialized partner to optimize the management of part of the NPAs with mortgage collateral 2 Speed up the divestment in NPAs, which should provide funding and capital synergies 3 High price that generates substantial capital gains 4 Use this platform to grow through servicing to third parties (1) NPAs: NPLs + write-offs + foreclosed assets 19
We posted 325M after completing precautionary provisioning (, million) Net profit Precautionary provisions after tax 20
Agenda 1. Key highlights 2. Results analysis 3. Commercial activity 4. Risk management 5. Liquidity & solvency 6. Conclusions & outlook 21
We have increased our SME lending by 9.7% YoY Improving the business mix Credit market share evolution (, million) (%) -3.6% (1) +35pb 110,506 108,219 106,748 102,837 81,982 78,326 76,602 71,543 7.07 7.42 28,524 29,893 30,146 31,294 4Q12 2Q13 3Q13 4Q13 Loans to SMEs (2) Gross loans SME s: + 9.7% YoY 4Q12 4Q13 (2) (1) -1.6% ex Suppliers Payment Program (2) Latest available information Nov-13 (2) Gross Credit ex repos 22
We maintain leadership in SMEs and corporates Still confident in SMEs and self-employed +9.7% YoY SME lending growth 91,770 new SMEs and independent professionals in 2013 Gaining market share: 1 out of 5 SMEs is a GBP customer Leaders in ICO (Instituto de Crédito Oficial) lines for second year in a row Popular ICO (1) line market share (1) Public funded credit lines 23
Still growing in time deposits and client liability transaction volumes Client retail funds evolution Deposits market share evolution ( Million) (%) +2.2% +28 pb 83.051 84.908 8,235 8,975 654 6,561 5.95 6.23 45,804 50,758 4Q12 4Q13 (1) 22,450 24,521 (1) Latest available information Nov-13 4Q12 Demand deposits Commercial paper 4Q13 Time deposits Rest retails funds Moreover, 11.8% annual AuM growth (+ 1,7Bn) 24
Agenda 1. Key highlights 2. Results analysis 3. Commercial activity 4. Risk management 5. Liquidity & solvency 6. Conclusions & outlook 25
2.2Bn of doubtful loans reclassified in advance of allocation of generic provisions, not considered in supervisory exercises (Million euros) NPL and Doubtful evolution 4Q13 (Million euros) NPL and Doubtful December 100% still performing 21,225 4,127 100% still performing 2,289 3,478 17,099 1,188 Recurrent entries Rest Subjective doubtful loans Total 4Q13 Stock Dec 13 Non performing loans Subjective doubtful loans 26
NPL formation includes a strong anticipatory component NPL ratio 4Q13 Segment distribution (%) (%) 12.42% 2.77% 11.50% 100% still performing 1.13% Doubtful Real Estate related Non Real Estate related 7,53% Non real estate related NPL ratio 41.31% NPL ratio Subjective doubtful loans (still performing) Non Performing Loans NPL 6.40% Real Estate related Non Real Estate related 27
Restructured loans reclassification completed: 59% of risk classified as doubtful, of which 90% has RE collateral NPL Restructured Loans portfolio evolution (Thousand of million euros and % over total restructured credit) +3,848 M (59% /total restructured loans) (36% /total restructured loans) 8,874 90% has collateral 5,026 4Q12 4Q13 28
The Bank maintains a high level of coverage NPL coverage Repossessed assets coverage (1) (%) (%) 32% 42% 40% 47% Doubtful NPLs & rest Total 4Q13 Total provisions over risks (2) (%) 12.7% 13.5% 2012 2013 (1) Spain. Includes financial stakes (2) Credit, guarantees, write-offs and repossessed. 29
In only 2 years we generated 2.4Bn above Oliver Wyman 2012 estimates Pre-provision profit excess in + 399M 2013 over OW (net of taxes) + 2013 Capital gains (net of 533M goodwill and taxes) + ABB in 2013 450M New measures in RWAs, + 1,049M DTAs & others (1) PROVISIONS CAPITAL 2.4Bn capital additionally generated (1) SMEs treatment, DTAs monetization & deleveraging 30
Better macro performance than OW adverse scenario. The Group covers 107% of expected loss in that scenario. Adverse macro scenario Expected Loss & provisions ( billion) 23.9 GDP 2012 2013 Real -1% -1% OW -4% -2% 6.1 Gross excess over OW Unemployment 2012 2013 Real 26% 26% OW 25% 27% 22.4 17.8 15.1 Housing prices 2012 2013 Real -13% -8% OW -20% -5% Expected loss adverse scenario 2012-14 Popular Dec 13 Expected loss base 2012-14 31
Growing real estate sales volume at prices above coverage (, millions) Real Estate Assets Sales +1.9x 1,027 units sold Sales split by nationality Sales split by region (%) 32
Agenda 1. Key highlights 2. Results analysis 3. Commercial activity 4. Risk management 5. Liquidity & solvency 6. Conclusions & outlook 33
We continue to improve our funding profile with a 8.6Bn annual reduction in Commercial Gap and a 110% LTD ratio Commercial Gap Loan to Deposits ratio (, million) (%) -35,611 M -64pp 44,613-8,694 M 27,489-5pp 17,696 18,800 15,562 12,909 9,002 2008 2011 2012 1Q13 2Q13 3Q13 4Q13 34
Our ECB exposure is below industry levels. Comfortable wholesale debt maturity profile, with average book costs above renewals Wholesale funding maturities profile (, millions) Covered bonds re-issuable at ECB Senior debt 9.2x covered 14,259 (*) 4 3,048 818 2,758 1,949 2,647 658 30 50 1,089 1,516 2014 2015 2016 2017 2018 >2018 Second line of liquidity Senior debt Covered bonds (*) After haircuts. Includes treasury accounts and financial assets at market prices Issues completed in 2013 Total issues in 2013: 4.4 Bn: 1,744 M Senior debt 2,160 M Covered bonds 500 M Additional Tier 1 ECB exposure vs. business market share Market share over Spanish financial entities -75% 35
Capital reinforcement measures have been increased while improving the quality of our capital Solid and comfortable capital ratios (%) Core EBA evolution Core EBA 11.21% +0,54% -0,38% +0,11% BIS III fully loaded 10.20% 10.95% 9,9% 11.21% Leverage ratio 6.08% 3Q13 New investors Corporate deals goodwill Net profit and others 4Q13 36
Agenda 1. Key highlights 2. Results analysis 3. Commercial activity 4. Risk management 5. Liquidity & solvency 6. Conclusions & outlook 37
Key highlights 2013 Sound recurrence in revenues Effort to adapt to new economic and regulatory environment High pre-provision profit, exceeding 4Q12 level (+12%) and still the best in the sector Net profit of 602M before precautionary provisions Implementing actions to prepare the Bank for supervisory assessments: Precautionary reclassification in the quarter of doubtful loans still performing to anticipating the NPL peak High provisioning effort Strategic management of the ALCO portfolio Improved liquidity LTD ratio improved to 110% Lowered reliance on ECB by 15.5Bn in 2013 Institutional investors confidence, 4.4Bn of new issuances last year Strong Capital position Entry of new shareholders in 4Q13 for 450M Core capital EBA 11.21% Leverage ratio of 6.08%, highlighting the high quality of our capital and positioning us as the leader in the sector 38
Outlook 2014 1 The economic situation shows signs of improvement 2 Adapting to this environment will mean focusing on the pillars of the business: growth in loans to corporates, gaining retail deposits and special emphasis on margins 3 NPL leading indicators are showing that, apart from external factors, we are close to reaching the peak on NPLs 4 Speeding up the sale of foreclosed assets remains a key priority 5 After the measures implemented, the Bank is well prepared to face the coming supervisory assessments 39
Thank you Q&A 40
41