Annual Report 2011 Annual Report2011
Índice
Introduction Identifying Data Governing Bodies Report from the Chairman Financial Data Financial Report of the Year Distribution of Net Surplus Comments to the Financial Statements Legal Documentation Audit Report Consolidated Financial Statements Notes to the Financial Statements Consolidated Management Report Other Information Information on activities Employees, Branch and Regional Offices
Annual Report 2011
Introduction Introduction Index Annual Report 2011
Introduction
Identifying Data
Name: Caja Rural de Navarra (S. Coop. de Crédito) Registered offices: Plaza de los Fueros, 1. 31003 PAMPLONA Telephone: 948 16 81 00 Telex: 37764 CUNA E Fax: 948 24 45 57 / 948 24 08 67 Tax Identification No.:F / 31 - 021611 Caja Calificada (legal status allowing the credit co-operative to administer government lending) Registered with the Bank of Spain: No. 3008. Registered with the Labour Ministry, General Register of Credit Co-operatives: No. 344 / s.º M. T. 2,163. Registered with the Mercantile Registry of Navarra: No. 6790, Volume 11, page 175, sheet NA183. Included in the Credit Co-operatives Guarantee Deposit Fund: Member of Banco Cooperativo Español. Member of the Spanish Association of Credit Co-Operatives Index Annual Report 2011
Introduction
Governing Bodies
Board of Directors Chairman: Mr. José Luis Barriendo Antoñanzas Vice-Chairman: Mr. José Ángel Ezcurra Ibarrola Secretary: Mr. Ignacio Terés Los Arcos Board Members: Mr. Francisco Javier Moreno Moreno Mr. José María Arizaleta Nieva Mr. José Luis Sarabia Moreno Mr. Luis Recarte Goldaracena Mr. Pedro Buldáin Zozaya Mr. Isidro Bazterrica Mutuberria Mr. José Javier Ignacio Goñi Pérez Mr. Luis Miguel Mateo Mateo Mr. Melchor Miranda Azcona Mr. Pedro María Beorlegui Egea Mr. José Javier López Morrrás Executive Committee Chairman: Mr. José Luis Barriendo Antoñanzas Vice-Chairman: Mr. José Ángel Ezcurra Ibarrola Secretary: Mr. Ignacio Terés Los Arcos Committee Member: Mr. Luis Recarte Goldaracena Committee Member: Mr. José María Arizaleta Nieva Chief Executive Officer Mr. Ignacio Arrieta del Valle Index Annual Report 2011
Introduction
Report from the Chairman
Dear Members: The year under review was marked by persistent doubts as to whether the world's developed economies would have the capacity to consolidate the recovery begun in 2010 and return to the path of sustained growth. Meagre growth expectations accentuated the concern surrounding these countries' ability to absorb the huge debt overhangs in the public and private sectors. Four years on from 2007 when the first shocks rippled out to affect all sectors of the global economy the situation has still not been stabilized. In 2011 the dangers remained as pressing as ever, with no global political and economic tools in place that might create a simultaneous path to growth for all advanced economies. Spain's problems are building up on several fronts. All the processes and reforms in train are long-term measures, meaning that in the short term prospects are bleak. Leaving aside Spain's high unemployment rate, the real Achilles heel of the Spanish economy is the across-the-board deleveraging that needs to happen to recover from a property bubble that was years in the making. In the Spanish financial sector, the crisis has produced far-reaching structural change, most obviously by wiping out the savings bank model which previously made up almost half the sector. The slump in solvency ratios that followed the crisis meant that for many of these savings banks, the only options were merger and conversion into banks. A restructuring of the financial sector that is insensitive to the different business models that make up its ecology poses a risk of over-concentration, and this could in turn impair market competition and discriminate against more vulnerable sectors. Index Annual Report 2011
Introduction
Size per se is not the goal, but rather the solvency and capacity to generate profit that comes with it. In retail banking models these factors are heavily dependent on proximity, market knowledge, regional ties and flexible decision- making structures, as well as on the cautious management that has always typified this sector. In the current environment, the cooperative banking model offers Spain a distinct alternative based on a firm belief in the advantages of a local, community banking model over other more centralized management models and in local banks' ability to generate profits far exceeding the comparatively small additional cost of maintaining a local presence. The model has been established in Europe for many years and has created a number of leading global financial brands that have based themselves on the principles we champion today. These principles have proven their worth over the sector's 100 year history, and particularly during the current crisis, during which none of Spain's cooperative credit institutions have required State assistance. Many other large banks and cajas, in contrast, have needed bailouts and for some even this was not enough to save them. Our business model, which is supported by the Caja Rural Group, is underpinned by our commitment to cooperative banking based on partnership with associates who are free from conflicting aims or interests, the core aim of each being to promote the economic and social development of its local community and surrounding area. The guiding principles of the Caja Rural Group may be summarized into the following three key elements: 1. Preserving the legal autonomy and decision-making capacity of associates. 2. Maintaining strong ties with the surrounding community, through close involvement in the economic and social development of the geographical area in which associates operate. 3. Developing mechanisms for inter-associate cooperation. To achieve efficiency and competitiveness, our model makes use of shared, centralized services that deliver necessary economies of scale and are provided by companies owned by the Group. The principal service companies are Banco Cooperativo Español, Rural Servicios Informáticos and Rural Grupo Asegurador. Index Annual Report 2011
Introduction
At the same time, like any other financial institution, each individual Caja Rural must continually strive to improve its efficiency if it is to survive. Within their individual areas of operation, all rural savings banks must keep their cost- efficiency ratios competitive with those of other banking institutions active at national level. The current turbulence has brought us a great opportunity - the opportunity definitively to claim for ourselves the space in the neighbourhood banking market from which other institutions, for the reasons described above, are withdrawing. For us, being a neighbourhood bank doesn't just mean having a branch in a given location. It also means being an integral part of the community, assuming a role within it and having the community in turn form part of the bank. In this way, solid and sustainable links are knitted between bank and community which constitute the best possible foundations for our Bank to build on. This is how we have worked in the past, and this is how we aim to work in the future. This is our guiding belief, and this is how we view the role of cooperative banks in the national and international financial world. It is our responsibility to ensure that our cooperative banking model and its great future potential is properly understood in the marketplace. It is this understanding that will secure the support necessary to preserve the unique features of our model and guarantee that we continue to fulfil the important economic and social functions that we have performed so well in the past. Moving on from these reflections, which are key to our survival and development, I would now like to update you on the Caja's achievements in 2011. These are described in detail in the accompanying report, but may be briefly summarized as follows: PROFITABILITY: Net interest income was 2.61% higher in 2011 than in 2010, and gross income rose 3.34%. The Caja recorded consolidated net profit for 2011 of EUR 28.7 million, after setting aside sizeable voluntary provisions over and above the Bank of Spain's requirements. This over-provisioning anticipated the requirements of Royal Decree 2/2012, on measures to strengthen the financial system. Index Annual Report 2011
Introduction
CAPITAL ADEQUACY: At the year-end the Caja had a consolidated eligible capital base of EUR 809.9 million, exceeding the minimum capital requirement established in Bank of Spain regulations by 72.82%. This figure equates to a solvency ratio of 13.83%, attesting to the Bank's considerable financial solidity. The core capital ratio is 12.61%, which is also well above the 8% minimum requirement set by the Royal Decree on measures to strengthen the Spanish financial system. BUSINESS VOLUMES: Customer deposits managed by Caja Rural de Navarra and recognized in its consolidated statement of financial position totalled EUR 5,221.3 million at year-end. Deposit volumes were 1.48% higher than at the prior-year close, reflecting two significant achievements. First, the Bank was able to combine growth with profitability despite the complex competitive environment of 2011. Second, the Bank outperformed the financial system as a whole, which shrank by 4% over the same period, thereby improving its competitive position. At the end of 2011, loans and advances to customers totalled EUR 6,321.9 million, a year-on-year increase of EUR 184.9 million, or 3.01%, relative to the previous year-end figure. These figures confirm once again the Bank's commitment to economic and social development in its areas of operation by channelling credit to individuals as well as companies and institutions - a commitment that is all the more notable in a period when lending volumes in the wider Spanish financial sector fell by 3.2%. Non-performing loans are having a major impact in the sector as we seek to emerge from the economic crisis. However, at the end of 2011, the Caja's non-performing loan (NPL) ratio was 3.89%, which was considerably below the year-end sector average of 7.61%. Index Annual Report 2011
Introduction
The year ahead will undoubtedly bring further significant difficulties. The Caja will approach these in its usual manner, prioritizing the same values that have served us so well in the past. I would like here to express my gratitude for the commitment and support of all those - members, customers and employees - who have made the continued expansion of Caja Rural de Navarra possible. Being able to count on this support and trust is the best guarantee of our continuing success.
PRESIDENT OF THE GOVERNING BOARD Jose Luis Barriendo Antoñanzas. Index Annual Report 2011
Financial Data Financial Data Index Annual Report 2011
Financial Data
Financial Report of the Year Consolidated balance sheet al 31/12/11 and 31/12/10
CHANGE 31/12/2011 31/12/2010 THOUS, EUR. % CONSOLIDATED BALANCE SHEET A S S E T S 1. CASH AND BALANCES WITH CENTRAL BANKS 32.193 33.159 -966 -2,91% 2. FINANCIAL INSTRUMENTS HELD FOR TRADING 17.317 15.673 1.644 10,49% 2.1. Equity instruments 2.640 2.262 378 16,71% 2.2. Trading derivatives 14.677 13.411 1.266 9,44% Memorandum items: Loaned or advanced as collateral 0 0 0 - 3. OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS 155 2.828 -2.673 -94,52% 3.1. Loans and advances to credit institutions 155 2.828 -2.673 -94,52% Memorandum items: Loaned or advanced as collateral 0 0 0 - 4. AVAILABLE-FOR-SALE FINANCIAL ASSETS 769.855 480.011 289.844 60,38% 4.1. Debt securities 635.280 328.074 307.206 93,64% 4.2. Equity instruments 134.575 151.937 -17.362 -11,43% Memorandum items: Loaned or advanced as collateral 135.004 0 135.004 - 5. LOANS AND ADVANCES 6.784.735 6.468.267 316.468 4,89% 5.1. Loans and advances to credit institutions 403.855 249.859 153.996 61,63% 5.2. Loans and advances to customers 6.321.950 6.136.998 184.952 3,01% 5.3. Debt securities 58.930 81.410 -22.480 -27,61% Memorandum items: Loaned or advanced as collateral 762.615 922.166 -159.551 -17,30% 6. HELD-TO-MATURITY INVESTMENTS 38.227 33.367 4.860 14,57% Memorandum items: Loaned or advanced as collateral 0 0 0 - 7. ADJUSTMENTS TO FINANCIAL ASSETS DUE TO MACRO-HEDGING 0 0 0 - 8. HEDGING DERIVATIVES 942 1.529 -587 -38,39% 9. NON-CURRENT ASSETS HELD FOR SALE 30.630 16.639 13.991 84,09% 10. EQUITY INVESTMENTS 58.588 59.949 -1.361 -2,27% 10.1. Associates 58.588 59.949 -1.361 -2,27% 10.2. Jointly-controlled entities 0 0 0 - 11. PENSION-LINKED INSURANCE CONTRACTS 0 0 0 - 12. REINSURANCE ASSETS 0 0 0 -
Pamplona, 23 March 2012 El Consejo Rector of CAJA RURAL DE NAVARRA, Sociedad Cooperativa de Crédito Index Annual Report 2011
Financial Data
CHANGE 31/12/2011 31/12/2010 THOUS, EUR. % CONSOLIDATED BALANCE SHEET A S S E T S 13. PROPERTY AND EQUIPMENT 155.672 157.233 -1.561 -0,99% 13.1. Property and equipment 150.304 152.428 -2.124 -1,39% 13.1.1. For own use 150.117 152.252 -2.135 -1,40% 13.1.2. Leased out under operating lease 0 0 0 - 13.1.3. Assigned to social projects 187 176 11 6,25% 13.2. Investment property 5.368 4.805 563 11,72% Memorandum items: Acquired under finance leases 873 1.056 -183 -17,33% 14. INTANGIBLE ASSETS 427 379 48 12,66% 14.1. Goodwill 427 379 48 12,66% 14.2. Other intangible assets 0 0 0 - 15. TAX ASSETS 27.440 17.920 9.520 53,13% 15.1. Current 2.480 1.727 753 43,60% 15.2. Deferred 24.960 16.193 8.767 54,14% 16. OTHER ASSETS 74.918 94.762 -19.844 -20,94% 16.1. Inventories 49.923 62.836 -12.913 -20,55% 16.2. Other 24.995 31.926 -6.931 -21,71% TOTAL ASSETS 7.991.099 7.381.716 609.383 8,26%
Pamplona, 23 March 2012 El Consejo Rector of CAJA RURAL DE NAVARRA, Sociedad Cooperativa de Crédito Index Annual Report 2011
Financial Data
CHANGE 31/12/2011 31/12/2010 THOUS, EUR. % CONSOLIDATED BALANCE SHEET L I A B I L I T I E S 1. FINANCIAL INSTRUMENTS HELD FOR TRADING 5.061 6.982 -1.921 -27,51% 1.1. Trading derivatives 5.061 6.982 -1.921 -27,51% 2. OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS 0 0 0 - 3. FINANCIAL LIABILITIES AT AMORTIZED COST 7.139.076 6.578.894 560.182 8,51% 3.1 Deposits from central banks 0 0 0 - 3.2. Deposits from credit institutions 1.784.356 1.080.962 703.394 65,07% 3.3. Customer deposits 5.221.377 5.145.472 75.905 1,48% 3.4. Debt securities 71.735 293.785 -222.050 -75,58% 3.5. Subordinated liabilities 0 0 0 - 3.6. Other financial liabilities 61.608 58.675 2.933 5,00% 4. ADJUSTMENTS TO FINANCIAL LIABILITIES DUE TO MACRO-HEDGING 0 0 0 - 5. HEDGING DERIVATIVES 9.657 10.879 -1.222 -11,23% 6. LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE 0 0 0 - 7. INSURANCE LIABILITIES 0 0 0 - 8. PROVISIONS 7.527 8.114 -587 -7,23% 8.1. Provisions for pensions and similar obligations 0 0 0 - 8.2. Provisions for taxes and other legal contingencies 0 0 0 - 8.3. Provisions for contingent exposures and commitments 7.527 8.114 -587 -7,23% 8.4. Other provisions 0 0 0 - 9. TAX LIABILITIES 12.093 12.209 -116 -0,95% 9.1. Current 1.432 1.856 -424 -22,84% 9.2. Deferred 10.661 10.353 308 2,97% 10. SOCIAL WELFARE FUND 12.136 14.414 -2.278 -15,80% 11. OTHER LIABILITIES 51.668 40.374 11.294 27,97% 12. SHARES REDEEMABLE ON DEMAND 0 0 0 - TOTAL LIABILITIES 7.237.218 6.671.866 565.352 8,47%
Pamplona, 23 March 2012 El Consejo Rector of CAJA RURAL DE NAVARRA, Sociedad Cooperativa de Crédito Index Annual Report 2011
Financial Data
CHANGE 31/12/2011 31/12/2010 THOUS, EUR. % CONSOLIDATED BALANCE SHEET E Q U I T Y 1. SHAREHOLDERS’ EQUITY 752.608 712.314 40.294 5,66% 1.1. Share capital 124.853 111.637 13.216 11,84% 1.1.1. Issued capital 124.853 111.637 13.216 11,84% 1.1.2. Less: Uncalled capital 0 0 0 - 1.2. Share premium 0 0 0 - 1.3. Reserves 601.076 567.504 33.572 5,92% 1.3.1. Retained earnings (losses) 595.706 561.079 34.627 6,17% 1.3.2. Reserves of companies accounted for using the equity method 5.370 6.425 -1.055 -16,42% 1.4. Other equity instruments 0 0 0 - 1.5. Less: Treasury shares 0 0 0 - 1.6. Profit attributable to owners of the parent 28.700 34.771 -6.071 -17,46% 1.7. Less: Dividends and remuneration -2.021 -1.598 -423 26,47% 2. VALUATION ADJUSTMENTS 1.270 -2.467 3.737 -151,48% 2.1. Available-for-sale financial assets 1.270 -2.467 3.737 -151,48% 3. NON-CONTROLLING INTERESTS 3300,00% 3.1. Valuation adjustments 0 0 0 - 3.2. Other 3 3 0 0,00% TOTAL EQUITY 753.881 709.850 44.031 6,20% TOTAL EQUITY AND LIABILITIES 7.991.099 7.381.716 609.383 8,26% M E M O R A N D U M I T E M S 1. CONTINGENT EXPOSURES 942.753 1.009.203 -66.450 -6,58% 2. CONTINGENT COMMITMENTS 1.101.992 1.285.562 -183.570 -14,28%
Pamplona, 23 March 2012 El Consejo Rector of CAJA RURAL DE NAVARRA, Sociedad Cooperativa de Crédito Index Annual Report 2011
Financial Data
Profit and Loss Statement at 31/12/11 and 31/12/10
CHANGE 31/12/2011 31/12/2010 THOUS, EUR. % CONSOLIDATED INCOME STATEMENT 1. Interest and similar income 218.885 183.788 35.097 19,10% 2. Interest and similar expense -134.183 -101.243 -32.940 32,54% 3. Remuneration paid to holders of shares redeemable on demand 0 0 0 - A) NET INTEREST INCOME 84.702 82.545 2.157 2,61% 4. Income from equity instruments 3.266 5.521 -2.255 -40,84% 5. Profit (loss) of companies accounted for using the equity method -167 1.260 -1.427 -113,25% 6. Fee and commission income 49.629 43.879 5.750 13,10% 7. Fee and commission expense -5.184 -4.934 -250 5,07% 8. Gains (losses) on financial assets and liabilities (net) 10.613 6.426 4.187 65,16% 8.1. Financial instruments held for trading 1.857 4.680 -2.823 -60,32% 8.2. Other financial instruments at fair value through profit or loss 65 -2 67 -3350,00% 8.3. Financial instruments not measured at fair value through profit or loss 8.284 2.021 6.263 309,90% 8.4. Other 407 -273 680 -249,08% 9. Translation differences (net) 538 466 72 15,45% 10. Other operating income 162.236 130.930 31.306 23,91% 10.1. Insurance and reinsurance premiums written 0 0 0 - 10.2. Sales and income from the provision of non-financial services 158.151 127.378 30.773 24,16% 10.3. Other operating income 4.085 3.552 533 15,01% 11. Other operating expenses -130.010 -96.154 -33.856 35,21% 11.1. Insurance and reinsurance contract costs 0 0 0 - 11.2. Change in inventories -2.636 -540 -2.096 388,15% 11.3. Other operating expenses -127.374 -95.614 -31.760 33,22%
Pamplona, 23 March 2012 El Consejo Rector of CAJA RURAL DE NAVARRA, Sociedad Cooperativa de Crédito Index Annual Report 2011
Financial Data
CHANGE 31/12/2011 31/12/2010 THOUS, EUR. % CONSOLIDATED INCOME STATEMENT B) GROSS INCOME 175.623 169.939 5.684 3,34% 12. Administrative expenses -94.945 -94.917 -28 0,03% 12.1. Personnel expenses -52.884 -53.505 621 -1,16% 12.2. Other general administrative expenses -42.061 -41.412 -649 1,57% 13. Depreciation and amortization -11.570 -12.351 781 -6,32% 14. Provisions (net) 562 19 543 2857,89% 15. Impairment losses on financial assets (net) -45.680 -25.513 -20.167 79,05% 15.1. Loans and advances -43.390 -24.702 -18.688 75,65% 15.2. Other financial instruments not measured at fair value through profit or loss -2.290 -811 -1.479 182,37% C) INCOME FROM OPERATING ACTIVITIES 23.990 37.177 -13.187 -35,47% 16. Impairment losses on other assets (net) -2.981 -1.482 -1.499 101,15% 16.1. Goodwill and other intangible assets 0 0 0 - 16.2. Other assets -2.981 -1.482 -1.499 101,15% 17. Gains (losses) on the derecognition of assets not classified as non-current assets held for sale 38 377 -339 -89,92% 18. Negative difference in business combinations 0 0 0 - 19. Gains (losses) on non-current assets held for sale not classified as discontinued operations 1.310 2.109 -799 -37,89% D) PROFIT BEFORE TAX 22.357 38.181 -15.824 -41,44% 20. Income tax 9.641 -25 9.666 -38664,00% 21. Mandatory allocation to welfare projects and funds -3.298 -3.386 88 -2,60% E) PROFIT (LOSS) FOR THE YEAR FROM CONTINUING OPERATIONS 28.700 34.770 -6.070 -17,46% 22. Profit (loss) from discontinued operations(net) 0 0 0 - F) CONSOLIDATED PROFIT FOR THE YEAR 28.700 34.770 -6.070 -17,46% F 1) Profit attributable to owners of the parent 28.700 34.771 -6.071 -17,46% F 2) Profit (loss) attributable to non-controlling interests 0 -1 1 -100,00%
Pamplona, 23 March 2012 El Consejo Rector of CAJA RURAL DE NAVARRA, Sociedad Cooperativa de Crédito Index Annual Report 2011
Financial Data
Distribution of Net Surplus
2.011
PROPOSED APPROPRIATION OF NET SURPLUS Thousands of euros Profit before mandatory allocation to the Social Welfare Fund 35,002 Interest to be paid to members on capital contributions 2,022 TOTAL AVAILABLE FOR APPROPIATION 32,980
APPROPRIATION OF SURPLUS Allocated to the Social Welfare Fund (1) 3,298 Allocation to Statutory Reserve Fund 29,682 TOTAL DISTRIBUTED 32,980
(1): Recognized in income as mandatory allocation
NOTE: The profits or losses of consolidated subsidiaries will be applied in the manner agreed at their respective General Shareholders Meetings. Index Annual Report 2011
Financial Data
Comments on the Financial Statements
Caja Rural de Navarra has been per- CAPITAL AND RESERVES (millions of euros) forming well for several years, with in- creases in revenues, wider margins 800 700 and an expansion project leading to 600 an increase in the number of branch 500 400 offices and the creation of new jobs. 300 200 100 The following charts show the positive 0 performance of these items. 2007 2008 2009 2010 2011
SURPLUS CALLED CAPITAL ELIGIBLE CAPITAL
BALANCE SHEET (millions of euros) BRANCHES 8.000 7.000 260 6.000 240 5.000 220 4.000 200 3.000 180 2.000 160 1.000 140 2007 120 2008 2009 2010 2011 100 2007 DEPOSITSLOANS AND ASSETS 2008 2009 2010 ADVANCES 2011
EMPLOYEES EQUITY (millions of euros)
1.000 50 900 45 800 40 700 35 600 30 500 25 400 20 300 15 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 Index
Annual Report 2011
Legal Documentation
Legal Documentation Legal Documentation Index Index Annual Report 2011
Legal Documentation Index Annual Report 2011
Legal Documentation
CAJA RURAL DE NAVARRA SOCIEDAD COOPERATIVA DE CRÉDITO AND SUBSIDIARIES
Consolidated annual accounts prepared by the Governing Board of CAJA RURAL DE NAVARRA, SOCIEDAD COOPERATIVA DE CRÉDITO at its meeting held on 23 March 2012 Index Annual Report 2011
Legal Documentation
Consolidated Balance Sheets at 31/12/10 and 31/12/09
Thousands of euro ASSETS Note 2011 2010
Cash and balances with central banks 7 32,193 33,159 Financial instruments held for trading 8 17,317 15,673 Loans and advances to credit institutions - - Loans and advances to customers - - Debt securities - - Equity instruments 2,640 2,262 Trading derivatives 14,677 13,411 Memorandum items: Loaned or advanced as collateral - - Other financial assets at fair value through profit or loss 9 155 2,828 Loans and advances to credit institutions 155 2,828 Loans and advances to customers - - Debt securities - - Equity instruments - - Memorandum items: Loaned or advanced as collateral - - Available-for-sale financial assets 10 769,855 480,011 Debt securities 635,280 328,074 Equity instruments 134,575 151,937 Memorandum items: Loaned or advanced as collateral 135,004 - Loans and advances 11 6,784,735 6,468,267 Loans and advances to credit institutions 403,855 249,859 Loans and advances to customers 6,321,950 6,136,998 Debt securities 58,930 81,410 Memorandum items: Loaned or advanced as collateral 762,615 922,166 Index Annual Report 2011
Legal Documentation
Thousands of euro ASSETS Note 2011 2010
Held-to-maturity investments 12 38,227 33,367 Memorandum items: Loaned or advanced as collateral - - Adjustments to financial assets due to macro-hedging - - Hedging derivatives 13 942 1,529 Non-current assets held for sale 14 30,630 16,639 Equity investments 15 58,588 59,949 Associates 58,588 59,949 Jointly-controlled entities - - Pension-linked insurance contracts - - Reinsurance assets - - Property and equipment 16 155,672 157,233 Property and equipment 150,304 152,428 For own use 150,117 152,252 Leased out under operating lease - - Assigned to social projects 187 176 Investment property 5,368 4,805 Memorandum items: Acquired under finance leases 873 1,056 Intangible assets 427 379 Goodwill 427 379 Other intangible assets - - Tax assets 27,440 17,920 Current 2,480 1,727 Deferred 24 24,960 16,193 Other assets 17 74,918 94,762 Inventories 49,923 62,836 Other 24,995 31,926
TOTAL ASSETS 7,991,099 7,381,716
Pamplona, 23 March 2012 El Consejo Rector of CAJA RURAL DE NAVARRA, Sociedad Cooperativa de Crédito Index Annual Report 2011
Legal Documentation
Thousands of euro L I A B I L I T I E S Note 2011 2010
Financial instruments held for trading 8 5,061 6,982 Deposits from central banks - - Deposits from credit institutions - - Customer deposits - - Debt securities - - Trading derivatives 5,061 6,982 Short securities positions - - Other financial liabilities - - Other financial liabilities at fair value through profit or loss - - Deposits from central banks - - Deposits from credit institutions - - Customer deposits - - Debt securities - - Subordinated liabilities - - Other financial liabilities - - Financial liabilities at amortized cost 18 7,139,076 6,578,894 Deposits from central banks - - Deposits from credit institutions 1,784,356 1,080,962 Customer deposits 5,221,377 5,145,472 Debt securities 71,735 293,785 Subordinated liabilities - - Other financial liabilities 61,608 58,675 Adjustments to financial liabilities due to macro-hedging - - Hedging derivatives 13 9,657 10,879 Liabilities associated with non-current assets held for sale - - Insurance liabilities - - Provisions 19 7,527 8,114 Provisions for pensions and similar obligations - - Provisions for taxes and other legal contingencies - - Provisions for contingent exposures and commitments 7,527 8,114 Other provisions - - Tax liabilities 12,093 12,209 Current 1,432 1,856 Deferred 24 10,661 10,353 Social Welfare Fund 23 12,136 14,414 Other liabilities 17 51,668 40,374 Shares redeemable on demand - -
TOTAL LIABILITIES 7,237,218 6,671,866 Index Annual Report 2011
Legal Documentation
Thousands of euro Note 2011 2010
EQUITY
Shareholders’ equity 752,608 712,314 Share capital 21 124,853 111,637 Issued capital 124,853 111,637 Less: Uncalled capital - - Share premium - - Reserves 22 601,076 567,504 Retained earnings (losses) 595,706 561,079 Reserves of companies accounted for using the equity method 5,370 6,425 Other equity instruments - - Hybrid financial instruments - - Other equity instruments - - Less: Treasury shares - - Profit attributable to owners of the parent 28,700 34,771 Less: Dividends and remuneration 21 (2,021) (1,598) Valuation adjustments 20 1,270 (2,467) Available-for-sale financial assets 1,270 (2,467) Cash flow hedges - - Hedges of net investments in foreign operations - - Translation differences - - Non-current assets held for sale - - Companies accounted for using the equity method - - Other valuation adjustments - - Non-controlling interests 3 3 Valuation adjustments - - Other 3 3
TOTAL EQUITY 753,881 709,850
TOTAL EQUITY AND LIABILITIES 7,991,099 7,381,716
MEMORANDUM ITEMS Contingent exposures 25 942,753 1,009,203 Contingent commitments 25 1,101,992 1,285,562
Pamplona, 23 March 2012 El Consejo Rector of CAJA RURAL DE NAVARRA, Sociedad Cooperativa de Crédito Index Annual Report 2011
Legal Documentation
Consolidated Income Statement for the year ended 31 December
Thousands of euro Note 2011 2010
Interest and similar income 27 218,885 183,788 Interest and similar expense 28 (134,183) (101,243) Remuneration paid to holders of shares redeemable on demand - -
NET INTEREST INCOME 84,702 82,545 Income from equity instruments 29 3,266 5,521 Profit (loss) of companies accounted for using the equity method (167) 1,260 Fee and commission income 30 49,629 43,879 Fee and commission expense 31 (5,184) (4,934) Gains (losses) on financial assets and liabilities (net) 32 10,613 6,426 Financial instruments held for trading 1,857 4,680 Other financial instruments at fair value through profit or loss 65 (2) Financial instruments not measured at fair value through profit or loss 8,284 2,021 Other 407 (273) Translation differences (net) 538 466 Other operating income 162,236 130,930 Insurance and reinsurance premiums written - - Sales and income from the provision of non-financial services 158,151 127,378 Other operating income 4,085 3,552 Other operating expenses (130,010) (96,154) Insurance and reinsurance contract costs - - Change in inventories (2,636) (540) Other operating expenses (127,374) (95,614) Index Annual Report 2011
Legal Documentation
Thousands of euro Note 2011 2010
GROSS INCOME 175,623 169,939 Administrative expenses (94,945) (94,917) Personnel expenses 33 (52,884) (53,505) Other general administrative expenses 34 (42,061) (41,412) Depreciation and amortization 16 (11,570) (12,351) Provisions (net) 35 562 19 Impairment losses on financial assets (net) (45,680) (25,513) Loans and advances 11 (43,390) (24,702) Other financial instruments not measured at fair value through profit or loss 10-12 (2,290) (811)
INCOME FROM OPERATING ACTIVITIES 23,990 37,177 Impairment losses on other assets (net) (2,981) (1,482) Goodwill and other intangible assets - - Other assets (2,981) (1,482) Gains (losses) on the derecognition of assets not classified as non-current assets held for sale 38 377 Negative difference in business combinations - - Gains (losses) on non-current assets held for sale not classified as discontinued operations 1,310 2,109
PROFIT BEFORE TAX 22,357 38,181 Income tax 24 9,641 (25) Mandatory allocation to welfare projects and funds 4 (3,298) (3,386)
PROFIT (LOSS) FOR THE YEAR FROM CONTINUING OPERATIONS 28,700 34,770 Profit (loss) from discontinued operations(net) - -
CONSOLIDATED PROFIT FOR THE YEAR 28,700 34,770 Profit attributable to owners of the parent 28,700 34,771 Profit (loss) attributable to non-controlling interests - (1)
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Consolidated statement of recognised income and expense at 31 December
Thousands of euro Note 2011 2010
CONSOLIDATED PROFIT FOR THE YEAR 28,700 34,770 OTHER RECOGNIZED INCOME AND EXPENSE 3,737 (1,528) Available-for-sale financial assets 5,090 (1,980) Measurement gains (losses), net 20 9,510 (2,648) Amounts transferred to the consolidated income statement (4,420) 668 Other reclassifications - - Cash flow hedges - - Measurement gains (losses), net - - Amounts transferred to the consolidated income statement - - Amounts transferred to the initial carrying amount of hedged items - - Other reclassifications - - Hedges of net investments in foreign operations - - Measurement gains (losses), net - - Amounts transferred to the consolidated income statement - - Other reclassifications - - Translation differences - - Measurement gains (losses), net - - Amounts transferred to the consolidated income statement - - Other reclassifications - - Non-current assets held for sale - - Gains (losses) on measurement - - Amounts transferred to the consolidated income statement - - Other reclassifications - - Actuarial gains (losses) on pension plans - - Other recognized income and expense - - Income tax 20 (1,353) 452
OTHER RECOGNIZED INCOME AND EXPENSE 32,437 33,242 Attributable to owners of the parent 32,437 33,243 Attributable to non-controlling interests - (1)
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Consolidated statement of all changes in equity at 31 December
EQUITY ATTRIBUTABLE TO THE PARENT COMPANY CAPITAL AND RESERVES RESERVES f
o
TOTAL parent parent (losses) method eserves INTERESTS RESERVES instruments instruments VALUATION R companies Other equity equity Other Share capital owners ofowners the remuneration TOTAL EQUITY ADJUSTMENTS Share premium accounted for for accounted using the equity Retained earnings earnings Retained Less: Dividends andLess: Less: Treasury shares Treasury Less: to attributable Profit TOTAL CAPITAL AND 2011 NON-CONTROLLING
Closing balance at 31 December 2010 111,637 - 561,079 6,425 - - 34,771 (1,598) 712,314 (2,467) 709,847 3 709,850 Adjustments for changes in accounting - policies ------Adjustments to correct errors ------Adjusted opening balance 111,637 - 561,079 6,425 - - 34,771 (1,598) 712,314 (2,467) 709,847 3 709,850 Total recognized income and expense ------28,700 - 28,700 3,737 32,437 - 32,437 Other changes to equity 13,216 - 34,627 (1,055) - - (34,771) (423) 11,594 - 11,594 - 11,594 Capital increases 18,520 ------18,520 - 18,520 - 18,520 Capital reductions (5,304) ------(5,304) - (5,304) - (5,304) Conversion of financial liabilities to - equity ------Income from other equity instruments ------Reclassification of financial liabilities as other equity instruments ------Reclassification of other equity - instruments as financial liabilities ------Payments to members ------(2,021) (2,021) - (2,021) - (2,021) Transactions in own equity instruments (net) ------Transfers between equity items - - 33,801 (628) - - (34,771) 1,598 - - - - - Increases (reductions) in equity in connection with business - combinations ------Discretional allocation to the Education and Development Fund ------Share-based payments ------
Other increases (reductions) in equity - - 826 (427) - - - - 399 - 399 - 399 Closing balance at 31 December 2011 124,853 - 595,706 5,370 - - 28,700 (2,021) 752,608 1,270 753,878 3 753,881
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EQUITY ATTRIBUTABLE TO THE PARENT COMPANY CAPITAL AND RESERVES RESERVES f
o
TOTAL parent parent (losses) method eserves INTERESTS RESERVES instruments instruments VALUATION R companies Other equity equity Other Share capital owners ofowners the remuneration TOTAL EQUITY ADJUSTMENTS Share premium accounted for for accounted using the equity Retained earnings earnings Retained Less: Dividends andLess: Less: Treasury shares Treasury Less: to attributable Profit TOTAL CAPITAL AND 2010 NON-CONTROLLING
Closing balance at 31 December 2009 87,361 - 509,222 7,308 - - 48,258 (1,323) 650,826 (939) 649,887 726 650,613 Adjustments for changes in accounting - policies ------Adjustments to correct errors ------Adjusted opening balance 87,361 - 509,222 7,308 - - 48,258 (1,323) 650,826 (939) 649,887 726 650,613 Total recognized income and expense ------34,771 - 34,771 (1,528) 33,243 (1) 33,242 Other changes to equity 24,276 - 51,857 (883) - - (48,258) (275) 26,717 - 26,717 (722) 25,995 Capital increases 25,701 ------25,701 - 25,701 - 25,701 Capital reductions (1,425) ------(1,425) - (1,425) - (1,425) Conversion of financial liabilities to - equity ------Income from other equity instruments ------Reclassification of financial liabilities as other equity instruments ------Reclassification of other equity - instruments as financial liabilities ------Payments to members ------(2) (1,598) (1,600) - (1,600) - (1,600) Transactions in own equity instruments (net) ------Transfers between equity items - - 47,479 (546) - - (48,256) 1,323 - - - - - Increases (reductions) in equity in connection with business - combinations ------Discretional allocation to the Education and Development Fund ------Share-based payments ------
Other increases (reductions) in equity - - 4,378 (337) - - - - 4,041 - 4,041 (722) 3,319 Closing balance at 31 December 2010 111,637 - 561,079 6,425 - - 34,771 (1,598) 712,314 (2,467) 709,847 3 709,850
Pamplona, 23 March 2012 El Consejo Rector of CAJA RURAL DE NAVARRA, Sociedad Cooperativa de Crédito Index Annual Report 2011
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Consolidated cash flow statement for the year ended 31 December
Thousands of euro 2011 2010
A) CASH FLOW FROM OPERATING ACTIVITIES 16,789 (5,215) Profit for the year 28,700 34,770 Adjustments to obtain cash flows from operating activities 52,551 33,480 Depreciation and amortization 11,570 12,351 Other adjustments 40,981 21,129 Net increase (decrease) in operating assets (627,083) (596,345) Financial instruments held for trading (1,644) 8,534 Other financial assets at fair value through profit or loss 2,673 22 Available-for-sale financial assets (287,673) (222,298) Loans and advances (356,813) (370,886) Other operating expenses 16,374 (11,717) Net increase (decrease) in operating liabilities 562,621 522,855 Financial instruments held for trading (1,921) (1,811) Other financial liabilities at fair value through profit or loss - - Financial liabilities at amortized cost 560,182 527,637 Other operating expenses 4,360 (2,971) Company income tax receipts (payments) - 25
B) CASH FLOWS FROM INVESTING ACTIVITIES (28,950) (19,816) Payments (-) 47,341 41,938 Property and equipment 11,229 12,836 Intangible assets 48 379 Equity investments 3,500 2,750 Other business units - - Non-current assets held for sale and related liabilities 20,718 15,347 Held-to-maturity investments 11,846 10,626 Other payments related to investing activities - - Receipts (+) 18,391 22,122 Property and equipment 1,092 4,446 Intangible assets - - Equity investments 2,277 - Other business units - - Non-current assets held for sale and related liabilities 8,037 11,381 Held-to-maturity investments 6,985 6,295 Other receipts related to investing activities - - Index Annual Report 2011
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Thousands of euro 2011 2010
C) CASH FLOWS FROM FINANCING ACTIVITIES 11,195 22,676 Payments (-) 7,325 3,025 Dividends 2,021 1,600 Subordinated liabilities - - Cancellation of own equity instruments 5,304 1,425 Acquisition of own equity instruments - - Other payments related to financing activities - - Receipts (+) 18,520 25,701 Subordinated liabilities - - Issue of equity instruments 18,520 25,701 Disposal of equity instruments - - Other receipts relating to financing activities - - Subordinated liabilities - -
D) EFFECT OF EXCHANGE RATE FLUCTUATIONS - -
E) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (A+B+C+D) (966) (2,355)
F) CASH AND CASH EQUIVALENTS AT START OF YEAR 33,159 35,514 G) CASH AND CASH EQUIVALENTS AT END OF YEAR 32,193 33,159
MEMORANDUM ITEMS CASH AND CASH EQUIVALENTS AT END OF YEAR Cash 32,193 33,159 Cash equivalents in central banks - - Other financial assets - - Less: Bank overdrafts repayable on demand - - Total cash and cash equivalents at end of year 32,193 33,159
Pamplona, 25 March 2011 El Consejo Rector of CAJA RURAL DE NAVARRA, Sociedad Cooperativa de Crédito Index Annual Report 2011
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NOTES TO THE FINANCIAL STATEMENTS
1. INTRODUCTION, BASIS OF PRESENTATION, CONSOLIDATION PRINCIPLES AND OTHER INFORMATION a) Introduction Caja Rural de Navarra, Sociedad Cooperativa de Crédito (hereinafter the Caja or the Bank) is a cooperative credit institution whose principal activity, pursuant to its articles of association, is to collect funds from the general public in the form of deposits, loans, financial assets sold under repurchase agreements, and other similar transactions involving a repayment obligation, and to use the funds thus obtained to offer, on its own account, loans, credit facilities and other similar transactions that meet the financial needs of its members and third parties.
Its articles of association were approved by the General Directorate for the Treasury and Financial Policy of the Ministry for the Economy and Finance on 24 January 1994.
The Caja began operating on 23 January 1946. Its activities are governed by Act 13/1989, of 26 May, on Cooperative Credit Institutions, the Cooperative Credit Institution Regulations set out in Royal Decree 84/1993, of 22 January, and Act 27/1999, of 16 July, on Cooperative Credit Institutions.
The Bank may engage in all kinds of lending, deposit and service activities in which other credit institutions are permitted to engage, prioritizing the financial needs of its members in the exercise of such activities.
As established in its articles of association, the Bank operates on a nationwide basis. At 31 December 2011, it had a network of 243 branches (unchanged from 31 December 2010), 140 of them located in Navarre (unchanged from 31 December 2010) and the rest in neighbouring regions. Through this network the Bank is able to perform all types of operation typical of and/or specific to entities of its kind. Index Annual Report 2011
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As a cooperative credit institution, the Bank is subject to certain legal regulations that establish, inter alia, the following requirements:
• That a minimum percentage of capital must be deposited with the Bank of Spain so as to ensure coverage of the minimum reserve requirement, which at 31 December 2011 and 2010 was 2% of eligible liabilities (Note 7). • That appropriations to the Mandatory Reserve Fund and to the Social Welfare Fund shall be made when distributing the net surplus for the year (Notes 22 and 23). • That a minimum level of capital and reserves must be maintained (Notes 1.h and 22). • That annual contributions shall be made to the Deposit Guarantee Fund for Credit Institutions to provide creditors with a further guarantee in addition to that provided by the Bank's equity (Note 1.i). • That at least 50% of the Bank's total capital and reserves shall be used in to extend credit (loans, credit lines, discounts) to members of the Bank and/or members of associated cooperative credit institutions.
The Bank is the parent of a group of companies whose activities it controls either directly or indirectly and that are engaged in various different activities and, together with the Bank, make up the Caja Rural de Navarra Group (hereinafter the Group). Consequently, in addition to its own individual annual financial statements, Caja Rural de Navarra is required to prepare consolidated annual financial statements for the Group.
The statements of the financial position of Caja Rural de Navarra, Sociedad Cooperativa de Crédito at 31 December 2011 and 2010 and the income statements corresponding to the years then ended are annexed to these notes.
b) Basis of presentation of the annual financial statements The consolidated annual financial statements of the Group have been prepared on the basis of the accounting records of the companies making up the Group in accordance with the International Financial Reporting Standards adopted by the European Union (IFRS-EU) so as to give a true and fair view of the equity, financial position and results of the Group at 31 December 2011, and of the changes in its equity and its consolidated cash flows in the year then ended. The accounting principles and measurement bases applied are detailed in Note 2. Index Annual Report 2011
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In addition, the Bank of Spain has published Circular 4/2004, superseding its earlier Circular 4/1991, the purpose of which, as set out in the introduction thereto, is to adapt the accounting system applied by credit institutions to the new accounting framework resulting from adoption of the IFRS. This Circular applies to the individual annual financial statements of all credit institutions. These consolidated financial statements have been prepared in accordance with the IFRS-EU and taking into account the provisions established in the aforesaid Circular 4/2004 and subsequent amendments thereto, which are aligned both with International Financial Reporting Standards and with the Spanish accounting framework and will be subject to adjustment as this global framework evolves over time.
The consolidated financial statements have been prepared on the basis of the accounting records maintained by the Bank and by the other companies making up the Group. However, since the accounting principles and measurement criteria applied in the preparation of the Group's consolidated annual financial statements for 2011 may differ from those used by certain entities included in the Group, the adjustments and reclassifications necessary to harmonize these principles and criteria across the Group and to bring them into line with IFRS-EU have been made in the process of consolidation.
The consolidated financial statements are presented in thousands of euro, except where otherwise stated.
Changes in accounting criteria occurring either because the standards have changed or because the Directors have decided to change the criteria applied retrospectively entail adjustments to the amounts of certain items that require an offsetting adjustment to the corresponding equity item in the oldest-dated opening statement of financial position for which comparative information is published, as if the new accounting criteria had always been applied as of this date. New criteria cannot be applied retrospectively where this is impracticable or the modifying regulations set a specific date for their application. Whenever errors originating from prior years that are the result of omissions, inaccuracies or deficiencies in the information available at the time are detected, such errors are corrected by applying the rules described above in relation to changes in accounting criteria.
There were no corrections of material prior period errors in 2011 and 2010, nor were there any material changes in accounting estimates that had an effect in those years or are expected to have an effect in future periods. Index Annual Report 2011
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These consolidated annual financial statements have been prepared by the Governing Board of Caja Rural de Navarra and are pending approval by its members, who have the power to make amendments hereto, at the forthcoming Annual General Meeting. However, the Bank's Board of Directors believes that the financial statements will be approved without material modification.
The consolidated annual financial statements for 2010 were approved at the Bank's Annual General Meeting held on 6 May 2011.
c) Changes in IFRS Certain accounting standards applied to the Group in 2011 underwent changes from those applied in the prior year. The most significant changes are detailed below.
i) Mandatory standards, amendments and interpretations adopted by the Group. - IAS 24, "Related party disclosures". The revised standard clarifies and simplifies the definition of a related party, eliminating inconsistencies in the previous standard and making it easier to apply. - IAS 32 (amendment), "Classification of rights issues". - IFRS 1 (amendment), "Limited exemption from comparative IFRS 7 disclosures for first-time adopters". - IFRIC 14 (amendment), "Prepayments of a minimum funding requirement". - IFRIC 19: "Extinguishing financial liabilities with equity.
ii) Annual improvements process 2010. - IFRS 1, "First-time application of IFRS". - IFRS 3, "Business combinations". The annual improvements project introduced the following clarifications to IFRS 3: • Contingent consideration agreements arising from business combinations whose acquisition dates preceded the application of IFRS 3 (2008) should be accounted for using the old version of IFRS 3 (issued 2004). It was similarly clarified that the amendments to IFRS 7 "Financial instruments: Disclosures", IAS 32 "Financial instruments: Presentation" and IAS 39 "Financial instruments: Recognition and measurement", eliminating exemptions for contingent Index Annual Report 2011
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consideration do not apply to contingent consideration that arose from business combinations whose acquisition dates preceded the application of IFRS 3 (2008). • The option to measure non-controlling interests at fair value or as the non- controlling interest's proportionate share of the acquiree's net identifiable assets only applies to instruments that are present ownership interests and entitle holders to a proportionate share of the acquiree's net assets in the event of liquidation. All other components of non-controlling interests should be measured at fair value, unless another measurement basis is required by IFRS. • The implementation guide to IFRS 3 applies to all transactions in respect of share-based payments that are replaced voluntarily or not replaced as part of a business combination.
Application of this amendment is mandatory for all financial years starting on or after 1 July 2010.
- IFRS 7, "Financial instruments: Disclosures". Changes include clarifications in respect of disclosures to make about financial instruments, particularly regarding the interaction between qualitative and quantitative disclosures required to allow users to understand the nature and extent of risks arising from financial instruments.
Application of this amendment is mandatory for financial years starting on or after 1 January 2011.
- IAS 1,"Presentation of financial statements". Clarifies that entities can present an analysis of the changes in equity components either in the statement of changes in equity or in the notes to the financial statements.
Application of this amendment is mandatory for financial years starting on or after 1 January 2011.
- IAS 27, "Consolidated and separate financial statements". Clarifies that the amendments made to IAS 21, "Effects of changes in foreign rates", IAS 28, "Investments in associates" and IAS 31, "Interests in joint ventures" as a result of the 2008 revisions to IAS 27 should be applied prospectively. Index Annual Report 2011
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Application of this amendment is mandatory for financial years starting on or after 1 July 2010.
- IAS 34, "Interim financial reporting". - IFRIC 13, "Customer loyalty programmes". Clarifies the term "fair value" in the context of measuring award credits granted under customer loyalty programmes.
Application of this amendment is mandatory for financial years starting on or after 1 January 2011.
iii Standards, amendments and interpretations with optional early adoption for financial years starting on or after 1 January 2011. At the date of signature of these consolidated financial statements the IASB and IFRS Interpretations Committee had published the following standards, amendments and interpretations for which application is mandatory from 2012 and which the Group has not adopted early.
- IFRS 7 (amendment) "Financial instruments: Disclosures - Transfers of financial assets". The amendment to IFRS 7 requires further disclosures in respect of risk exposures arising from financial assets transferred to third parties. Issuers must disclose analyses of risk/rewards on transactions where financial assets were not derecognized, identifying financial liabilities associated with them, and provide more detailed disclosures on transactions where financial assets were derecognized: the overall profit/loss from the transaction, risks and rewards that remain with the company and their initial and subsequent accounting treatment, as well as the estimated fair value of the company's "continuing involvement" recognized in the balance sheet. Among other things, this amendment affects sales of financial assets, factoring agreements, securitization of financial assets and securities lending agreements. Application of IFRS 7 amendments is mandatory for financial years starting on or after 1 July 2011. Early adoption is permitted. Index Annual Report 2011
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iv) Standards, amendments and interpretations of existing standards not yet adopted by the European Union. At the date of preparation of these consolidated financial statements the IASB and IFRS Interpretations Committee had published the following standards, amendments and interpretations which have not yet been adopted by the European Union.
- IFRS 9, "Financial instruments". The issue of IFRS 9 "Financial instruments", in November 2009 was the first step in the IASB's project to replace IAS 39, "Financial instruments: recognition and measurement". IFRS 9 simplifies the accounting treatment of financial assets and introduces new requirements for their classification and measurement. It requires that financial assets held principally to collect cash flows that are payments of principal and interest are measured at amortized cost, while the other financial assets, including those held for trading, are measured at fair value. As a result, impairment models are only required for financial assets carried at amortized cost. At the moment, IAS 39 rules on impairment of financial assets and hedge accounting remain in force.
This standard will apply to financial years starting on or after 1 January 2015. Early adoption is permitted. At the date of preparation of these financial statements, this standard had not been adopted by the European Union.
- IFRS 9 (amendment), "Mandatory effective date and transitional disclosures". The IASB has published an amendment delaying implementation of IFRS 9, "Financial instruments", which will now only become mandatory for financial years starting on or after 1 January 2015. Under the original transitional arrangements, IFRS 9 was to come into force on 1 January 2013. Early adoption is still permitted.
Also, the IASB has extended the timetable for completing the remaining phases of the project to replace IAS 39, "Financial instruments: Recognition and measurement" (accounting for impairment and hedge accounting). This amendment highlights the importance of simultaneous adoption of all phases of the new standard. Index Annual Report 2011
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- Another point to note is that the amendment of IFRS 9 introduces changes to the comparative information and additional disclosures required after the new standard is adopted, based on the date of first adoption, as follows: • If IFRS 9 is applied to years starting before 1 January 2012, it is not mandatory to restate comparative information or include the additional disclosures at the date of first adoption. • If IFRS 9 is applied to years starting on or after 1 January 2012 but before 1 January 2013, entities must choose between restating comparative information or including additional disclosures at the date of first adoption. • If IFRS 9 is applied to years starting on or after 1 January 2013, it is not mandatory to restate comparative information but entities must include the additional disclosures at the date of first adoption. - IAS 12 (amendment), "Deferred tax: Recovery of underlying assets". The amendment of IAS 12 sets out a practical approach to measuring deferred tax assets and liabilities related to investment properties carried at fair value (one of the measurement options allowed under IAS 40 "Investment properties"). When measuring deferred tax assets the amendment introduces a refutable presumption that the economic benefits inherent in investment properties carried at fair value will be recovered by sale rather than through use. The amendment incorporates into IAS 12 previous guidance from SIC 21, "Income taxes - Recovery of revalued non-depreciable assets", explicitly excluding investment properties carried at fair value from its scope.
Application of this amendment is mandatory for financial years starting on or after 1 January 2012.
- IFRS 1 (amendment), "Severe hyperinflation and removal of fixed dates for first-time adopters".
- IFRS 10 "Consolidated financial statements". IFRS 10 introduces changes in the concept of control, which remains the determining factor for whether an entity should or should not be included in the consolidated financial statements. IFRS 10 replaces the guidance on control and consolidation in IAS 27, "Consolidated and separate financial statements", and replaces SIC 12, "Consolidation - Special purpose entities", which is cancelled. Index Annual Report 2011
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Control is deemed to exist where two elements apply: power over an entity and variable remuneration. Power is defined as the capacity to direct the activities of the entity that significantly affect its returns. The standard provides extensive guidance on application to cases where it is hard to decide whether or not control exists, such as when an investor holds less than half the voting rights. The concept of uniform accounting principles for controlling company and subsidiaries for the purposes of consolidated financial statements and the consolidation procedures are unchanged from the prior IAS 27.
Application of this amendment is mandatory for all financial years starting on or after 1 January 2013. Early adoption is permitted, provided that the entity simultaneously adopts IFRS 11, "Joint arrangements", IFRS 12, "Disclosure of interests in other entities", IAS 27 (amended 2011), "Separate financial statements", and IAS 28 (amended 2011), "Investments in associates and joint ventures".
- IFRS 11, "Joint arrangements". IFRS 11 sets out an accounting treatment for joint arrangements based on the rights and obligations arising from the arrangement rather than its legal form. Joint arrangements must be classed as one of two types: joint operations or joint ventures. Joint operations are those where a party has direct rights to the assets and obligations arising from the arrangement, and therefore recognizes its proportional interest in the assets, liabilities, revenue and expenses of the investee. Joint ventures are those where a party has rights to the profit or loss or net assets of the entity in which it invests and therefore recognizes it by the equity method. It is no longer permitted to recognize interests in joint ventures using the proportionate consolidation method.
Application of this amendment is mandatory for all financial years starting on or after 1 January 2013.
- IFRS 12, "Disclosures of interests in other entities". IFRS 12 sets out disclosure requirements for entities reporting under the new IFRS 10, "Consolidated financial statements" and IFRS 11, "Joint ventures" standards. It replaces previous disclosures under the old IAS 28, "Investments in associates" and IAS 31, "Interests in joint ventures". Under IFRS 12, a company must disclose information that enables users of its financial statements to evaluate the nature, risks and financial effects associated with its investments in subsidiaries, associates, joint ventures and non-consolidated structured entities. Index Annual Report 2011
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Application of this amendment is mandatory for all financial years starting on or after 1 January 2013.
- IAS 27 (amendment), "Separate financial statements". - IAS 28 (amendment). "Investments in associates and joint ventures". IAS 28 has been updated to include references to joint ventures, which, under IFRS 11 "Joint ventures" must be recognized using the equity method. - IFRS 13, "Fair value measurement". IFRS 13 is the result of a joint project between the IASB and FASB (Financial Accounting Standards Board of the USA) which sets out how to measure items carried at fair value and aims to improve and extend requirements for fair value disclosures. The standard does not define which items should be measured at fair value nor add new requirements to measure items at fair value.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). It is based on the market's expectations not those of the entity. There is a three-level hierarchy, the same as in IFRS 7, for fair value measurements, based on the type of inputs and measurement methods applied. Disclosure requirements under the new standard include disclosure of the measurement methods applied, data used in the measurements and any changes to measurement techniques.
Application of this amendment is mandatory for all financial years starting on or after 1 January 2013. Early adoption is permitted. The new standard will apply prospectively from the start of the financial year in which it is applied for the first time. Disclosure requirements do not apply to comparative information for years prior to first-time application of IFRS 13.
- IAS 1 (amendment), "Presentation of financial statements". This amendment changes the presentation of other comprehensive income, requiring items shown as OCI to be grouped into two categories based on whether or not they will be taken to the income statement. IAS 1 has also renamed the "statement of comprehensive income" the "statement of profit or loss and other comprehensive income". Other titles are permitted. Index Annual Report 2011
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This amendment will apply to all financial years starting on or after 1 July 2012. Early adoption is permitted.
- IAS 19 (amendment), "Employee benefits". The amendment to IAS 19 significantly changes the rules for recognition and measurement of defined-contribution pensions and termination benefits, and disclosures of all benefit payments.
Application is mandatory for all financial year starting on or after 1 January 2013. Early adoption is permitted.
- IFRIC 20, "Stripping costs in the production phase of a surface mine". - IAS 32 (amendment) and IFRS 7 (amendment), "Offsetting financial assets and financial liabilities". d) Accounting principles and measurement bases These consolidated annual financial statements have been prepared in accordance with the generally accepted accounting principles described in Note 2 "Accounting policies and measurement bases". All mandatory accounting principles and measurement bases with a significant effect on the consolidated financial statements were applied. e) Consolidation principles I. Group companies Subsidiaries are those entities over which the Group has the capacity to exercise management control. This capacity is, in general but not exclusively, presumed to exist when the Parent directly or indirectly controls at least half of the voting rights of the investee or when agreements have been concluded been shareholders of the investee that confer control upon the Group even though this percentage is less than half or even zero. Control is understood to be the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The annual financial statements of subsidiaries are fully consolidated with those of the Caja. Accordingly, all material balances and transactions between consolidated companies and between these companies and the Caja are eliminated on consolidation. Index Annual Report 2011
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When a subsidiary is acquired, its assets, liabilities and contingent commitments are recognized at their fair value on the date of acquisition. Any positive differences between the acquisition cost and the fair values of the identifiable net assets acquired are recognized as goodwill. Any negative differences are charged to income on the acquisition date. Third-party interests in the Group's capital are recognized as "Non-controlling interests" in the consolidated statement of financial position. Non-controlling interests' share in profit for the year is recognized in "Profit (loss) attributable to non-controlling interests" in the consolidated income statement. The results of subsidiaries over which the Group has obtained control in the course of the year are included in the consolidated income statement from the date of acquisition to the year-end only.
II. Investments in jointly-controlled entities Jointly-controlled entities" are investments in companies that are not subsidiaries but are jointly-controlled by two or more unrelated companies. Joint control is evidenced by a contractual arrangement whereby two or more entities ("venturers") undertake an economic activity that is subject to their control and where they share the power to direct the financial and operating policies of an entity, or of another economic activity, so as to obtain benefits from its operations. Accordingly, any strategic financial or operating decision affecting the jointly- controlled company requires the unanimous consent of all venturers. The annual financial statements of investees classified as jointly-controlled entities are proportionately consolidated with those of the Bank, such that balances are aggregated and subsequent eliminations made only in proportion to the Group's interest in these companies' share capital. At 31 December 2011 and 2010, the Group had no interests in jointly-controlled entities.
III. Investments in associates Associates are entities over which the Group has the capacity to exercise significant influence, but not control or joint control. The Bank is considered to have significant influence when, amongst other situations, it is represented on the investee's Board of Directors or equivalent management body, it participates in the policy-making process, including decisions relating to dividends and other distributions, it performs significant transactions with the investee, exchanges senior management personnel or supplies key technical data, although, for such significant influence to exist, the Bank must generally directly or indirectly control 20% or more of the investee's voting rights. Index Annual Report 2011
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In the consolidated financial statements, investments in associates are accounted for using the equity method. The Group's investments in associates are recognized at cost on the date of acquisition and subsequently re- measured according to the Group's share in the net assets of each associate, after taking dividends received and other equity eliminations into account. Gains and losses resulting from transactions with an associate are eliminated to the extent of the Group's interest in the associate's capital. Gains or losses generated by associates in the year are recognized, after the eliminations referred to in the previous paragraph, as an increase or reduction, as applicable, in the value of the investment shown in the consolidated financial statements. These gains or losses are recognized in the consolidated income statement in "Profit (loss) of companies accounted for using the equity method". Since the accounting principles and measurement criteria applied in the preparation of the Group's consolidated annual financial statements may differ from those used by certain entities included in the Group, the most significant principles and criteria have been harmonized in the process of consolidation to bring them in line with International Financial Reporting Standards. The details of fully consolidated subsidiaries at 31 December 2011 and 2010 were as follows:
Thousands of euro % ownership Acquisition cost interest 2011 2010 2011 2010 Subsidiaries Informes y Gestiones Navarra, S.A. 100.00% 100.00% 1,860 1,860 Harivasa 2000, S.A. 100.00% 100.00% 2,366 2,366 Harinera de Tardienta, S.A. 100.00% 100.00% 11,779 11,779 Facilpark, S.A. 100.00% 100.00% 60 60 Promoción Estable del Norte, S.A. 100.00% 100.00% 30,956 30,956 Industrial Tonelera Navarra, S.A. 100.00% 100.00% 1,820 1,820 Seresgerna, S.A. 100.00% 100.00% 3,005 3,005 Residencia Torre de Monreal, S.L. 99.84% 99.84% 2,500 2,500 Distribution subgroup 100.00% 100.00% 2,250 2,000 Preventia Sport, S.L. 100.00% 100.00% 443 443 Renovables de la Ribera, S.L. - 100.00% - 150 The Spanish Food & Drinks Company GMBH 100.00% 100.00% 25 25
Details of associates are given in Note 15. Index Annual Report 2011
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The activities and registered offices of Group companies included in the scope of consolidation at 31 December 2011 are listed below:
Company Head office Line of business Informes y Gestiones Navarra, S.A. Pamplona Document preparation and processing Harivasa 2000, S.A. Noain (Navarra) Manufacture and sale of flour Harinera de Tardienta, S.A. Tardienta (Huesca) Manufacture and sale of flour Facilpark, S.A. Pamplona Building, management and sale of car parks Promoción Estable del Norte, S.A. Pamplona Real estate development Industrial Tonelera Navarra, S.A. Monteagudo Manufacture and sale of barrels and casks (Navarra) Seresgerna, S.A. Pamplona Development and operation of senior care centres Residencia Torre de Monreal, S.L. Tudela (Navarra) Development and operation of senior care centres Distribution subgroup Pamplona Distribution of agri-foodstuffs Preventia Sport, S.L. Pamplona Medical sports services The Spanish Food & Drinks Germany Distribution of agri-foodstuffs Company GMBH
f) Accounting estimates and assumptions used In the preparation of the Group's 2011 consolidated financial statements, certain estimates were made by its senior executives, and subsequently ratified by its Directors, in order to quantify certain of the assets, liabilities, revenues, expenses and commitments reported herein. These estimates related basically to the following:
• Impairment losses on certain financial instruments. (Notes 2.g, 10, 11 and 19) • The assumptions used in the actuarial calculation of liabilities and commitments for post-employment benefits. (Note 2.t) • The useful lives of items of property and equipment. (Note 2.i) • The fair value of certain financial assets not listed on official secondary markets. (Note 6.d) To determine the value of certain property assets at the year-end, the Group also used valuations made by independent appraisers. These valuations were based on estimates of future cash flows, expected returns and other variables, which should be taken into consideration when interpreting the accompanying consolidated financial statements. Index Annual Report 2011
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The estimates and assumptions used are based on past experience and whatever other factors are considered most relevant at the present time, and are reviewed regularly. If as a consequence of these reviews or future events these estimates were to change, the effect thereof would be recognized in consolidated income for the present year and subsequent periods. g) Comparative information As required under prevailing commercial legislation, in addition to the figures for 2011 for each item in the consolidated statement of financial position, consolidated income statement, consolidated statement of recognized income and expense, statement of changes in equity, consolidated cash flow statement, and notes to the consolidated financial statements, for comparison purposes the Group's Directors present the equivalent figures for 2010. To this end, the models used to present the consolidated statement of financial position, consolidated income statement, consolidated statement of recognized income and expense, consolidated statement of changes in equity and the consolidated cash flow statement in these financial statements have been adjusted to conform to the templates contained in Bank of Spain Circular 4/2004 and subsequent amendments thereto. h) Equity Bank of Spain Circular 3/2008, of 22 May, on calculating and monitoring minimum capital requirements, as amended by Circulars 9/2010 of 22 December and 4/ 2011 of 30 November, regulates the minimum capital requirements applying to Spanish credit institutions either as an individual company or as a consolidated group and the manner in which their capital ratios should be calculated. It also sets out the various capital self-evaluation procedures that should be adopted by such institutions and the public information which they should provide to the market.
The aforementioned Circular 3/2008 marked the final stage in the implementation of regulations for credit institutions under the legislation on capital requirements and consolidated supervision of financial institutions provided for in Act 36/2007, of 16 November, amending Act 13/1985, of 25 May, on investment ratios, capital requirements and reporting obligations for financial intermediaries and other regulations concerning the financial system, and which also includes Royal Decree 216/2008, of 15 February, on the capital requirements of financial institutions. The Circular also marked the end of the process of Index Annual Report 2011
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adapting Spanish legislation on credit institutions to Directive 2006/48/EC of the European Parliament and of the Council, of 14 June 2006, relating to the taking up and pursuit of the business of credit institutions (recast) and Directive 2006/ 49/EC of the European Parliament and of the Council, of 14 June 2006, on the capital adequacy of investment firms and credit institutions (recast), in line with the principles set out in the Capital Accord issued by the Basel Committee on Banking Supervision (Basel II).
The minimum capital requirements laid down by the Circular (Pillar I) are based on the Group's exposure to credit, exchange rate, investment, market and operational risks. The Group must also comply with limits on concentration risks set out in the same Circular.
On Pillar II, the Circular requires entities to present an internal capital adequacy assessment process report to ensure the correct balance between the risk profile of the lenders and their effective capital and to set the target for Group capital and plan medium-term capital requirements.
Finally, based on Pillar III, the Circular decrees that entities should draw up, at least once a year, a document called "Information of prudential relevance" that should contain any necessary explanations and details concerning the eligible capital base, capital requirements based on risks assumed and other mandatory disclosures.
At its meeting of 12 September 2010, the Governors and Heads of Supervision (supervisory body) of the Basel Committee on Banking Supervision, announced a major strengthening of the current capital requirements and approved the accords reached on 26 July 2010 (Basel III). The Basel III accords will start to come into force from 1 January 2013. By then, countries should have transposed the accord into their national regulations and law.
Accordingly, Spain approved Royal Decree 2/2011 on 18 February 2011, on banking sector reforms, to tighten existing capital requirements, both quantitatively and qualitatively, and bring them into line with the new Basel III international standards. Index Annual Report 2011
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The new core capital requirement sets the general coverage ratio at 8% of risk- weighted assets. This rises to 10% for entities raising more than 20% of their capital from wholesale markets and not having placed at least 20% of their securities with third parties. In line with Basel III, core capital is defined as share capital, reserves, share premium, positive valuation adjustments and non-controlling interests, as well as instruments underwritten by the Fund for Orderly Bank Restructuring (FROB) and, for a transitional period, mandatory convertible bonds maturing before 2014. Deducted from these instruments are all losses, negative valuation adjustments and intangible assets. These new requirements came into force on 10 March 2011.
Bank of Spain Circular 3/2008, and subsequent amendments thereto, establish which items should be taken into account in the calculation of shareholders' equity for purposes of compliance with the minimum requirement established in the Circular. Shareholders' equity for the purpose of the aforementioned Circular consists of core (tier 1) capital and tier 2 capital and differs from shareholders' equity calculated in accordance with the provisions of IFRS-EU, which consider certain items as equity and require certain other times not treated as equity under IFRS-EU to be deducted. In addition, the investee consolidation and recognition methods to be used for the purpose of calculating the Group's minimum capital requirements differ, in accordance with prevailing legislation, from those used to draw up these consolidated financial statements, meaning that there are also differences in the calculation of minimum capital under the one or the other rule.
At 31 December 2011 and 2010, the Group's eligible capital, calculated on a consolidated basis, and core capital ratio exceeded the minimum required under the aforementioned regulations (Note 22). i) Deposit Guarantee Fund The Bank is a member of the Deposit Guarantee Fund. In 2011 and 2010, the Group made ordinary and additional contributions of EUR 3,711 thousand and EUR 3,523 thousand, respectively, to the fund. These amounts are recognized in the corresponding consolidated income statements under "Other operating expenses". Index Annual Report 2011
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On 15 October 2011, Royal Decree 16/2011, of 14 October, came into force creating the Deposit Guarantee Fund for Credit Institutions. Its Article 2 dissolves the Deposit Guarantee Fund for Cajas de Ahorro (savings banks), the Deposit Guarantee Fund for Banks and the Deposit Guarantee Fund for Cooperative Credit Institutions, all of whose assets were incorporated into the Deposit Guarantee Fund for Credit Institutions, subrogating the previous funds in all their rights and obligations.
Accordingly, as of that date the Bank became a member of the new Deposit Guarantee Fund for Credit Institutions.
On 2 December 2011, Royal Decree 19/2011, of 2 December, came into force amending Royal Decree 16/2011, increasing contributions to the Deposit Guarantee Fund for Credit Institutions to 2 per thousand of the deposits guaranteed. The Royal Decree applies to all contributions paid after its entry into force. In 2011, contributions were set at 0.8 per thousand.
Finally, on 4 July 2011, Circular 3/2011, of 30 June, on contributions by entities belonging to a Deposit Guarantee Fund, came into force. The Circular requires additional quarterly contributions from member entities that arrange term deposits or settle demand accounts with remuneration that exceeds certain interest rates, depending on the length of the lock-up period or the terms of the demand account. This additional contribution is calculated by weighting at 500% all arranged or liquidated deposits that pay over the rate threshold, applying the same calculation basis as the ordinary contributions. In 2011, no expenses had been accrued under this item as new deposits did not exceed the interest rate threshold determined.
j) Environmental impact Because of the activities in which it is engaged, the Group has no liabilities, costs, assets, provisions or contingencies of an environmental nature that could be material relative to its equity, financial position and results. Accordingly, no breakdowns of specific environmental information have been included in these notes to the financial statements.
k) Post-balance sheet events No events having material effects on the Group occurred between 31 December 2011 and the date of preparation of these consolidated financial statements, other than those described below. Index Annual Report 2011
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On 4 February 2012, the Spanish Government published Royal Decree 2/2012 of 3 February, on measures to strengthen the financial system, aimed at restoring confidence in and reinforcing the credibility and solidity of the sector and facilitating its return to financing economic growth and job creation. The Royal Decree set new requirements for provisioning and additional capital, mainly to cover impairments to property assets, whether in the form of financing or real estate foreclosed or received in settlement of debt.
In general, institutions have until 31 December 2012 to comply with the new standards, although those that are in the process of merging in 2012 are allowed an additional twelve months counting from the date the merger is approved.
At the date of preparation of these consolidated financial statements, given the divergent interpretations of how Royal Decree 2/2012 should be applied, the Bank's Directors are still assessing how its application will affect the Bank although they are clear that the impact on Group assets and liabilities will not be material.
2. ACCOUNTING POLICIES AND MEASUREMENT BASES The accounting policies and rules and measurement bases applied in preparing these consolidated financial statements were as follows: a) Going concern principle In the preparation of the consolidated financial statements, it has been assumed that the Group will remain in business for the foreseeable future. Accordingly, the accounting policies applied were not intended to establish the Group's net asset value for the purpose of transferring all or part of the resulting amount in the event of its liquidation. b) Accruals principle Except, as appropriate, with regard to the consolidated cash flow statement, these consolidated financial statements have been drawn up on the basis of the actual flow of goods and services, irrespective of the dates of payment or collection. Index Annual Report 2011
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c) Other general principles The consolidated financial statements have been drawn up using the historical cost method, albeit modified by the restatement of certain items of property and equipment on 1 January 2004, as detailed in Note 2.i), and by the fair value measurement of financial instruments held for trading, other financial assets at fair value through profit or loss, available-for-sale financial assets and other financial assets and liabilities (including derivatives).
d) Classification and measurement of financial instruments I. Definitions A "financial instrument" is any contract that gives rise to a financial asset at one entity and a financial liability or equity instrument at another. An "equity instrument" is any contract that evidences a residual interest in the entity's assets after deducting all its liabilities. A "financial derivative" is a financial instrument that derives its value from the value of an observable market variable (interest rate, exchange rate, price of a financial instrument or market index) and any changes in this value, requires little initial investment relative to other financial instruments that respond in a similar manner to changes in market conditions, and is generally settled at a future date. "Hybrid financial instruments" are contracts that create for their issuer both a financial liability and an equity instrument (for example, bonds convertible into equity instruments of the issuer). The following transactions are not treated as financial instruments for accounting purposes: Equity investments in associates (Note 15). The rights and obligations deriving from employee benefits schemes (Note 2.t).
• Equity instruments Members' capital contributions to cooperative entities are treated as equity instruments and recognized in equity if the entity has an unconditional right to refuse redemption or redemption is prohibited by regulations or the articles of association. If the redemption prohibition is partial, the redeemable amount above the specified prohibition level is recognized in a specific line of the Index Annual Report 2011
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consolidated statement of financial position termed "Shares redeemable on demand". Contributions in respect of which the Group has a remuneration obligation, albeit one conditional upon the cooperative entity generating a profit, are treated as financial liabilities. Remuneration paid on capital contributions is recognized in finance expense for the year when it corresponds to contributions treated as financial liabilities but recognized directly in equity in all other cases. Issues, redemptions and compensation received or paid on own equity instruments are recognized directly in the Group's consolidated equity, without any changes in the value of instruments of this type being recognized in the financial statements. In addition, the costs incurred in transactions of this type are deducted directly from equity, net of any related tax effect. Remuneration, changes in carrying amount, and gains or losses associated with the repurchase or refinancing of financial liabilities are recognized in income. Costs incurred in the issue of financial liabilities are also recognized in income, applying the effective interest rate method. Remuneration paid on shares redeemable on demand and classified as expenses is in all cases recognized in a separate entry.
• Hybrid financial instruments Caja Rural de Navarra issues hybrid financial instruments that include a non-derivative host contract together with a derivative, known as an embedded derivative. These embedded derivatives are separated from the host contract and treated independently for accounting purposes, provided that the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the non-derivative host contract, that a separate instrument with the same characteristics as the embedded derivative would meet the definition of derivative, and that the hybrid contract is not measured at fair value through profit or loss. The initial value of embedded derivatives that are options when separated from the host contract is obtained on the basis of their specific individual characteristics, while those that are not options are assigned zero initial value. When the Group cannot reliably measure the fair value of an embedded derivative, it estimates its value as the difference between the fair value of the embedded contract and the host contract, provided both values can be deemed reliable. If this is also not possible, the Group does Index Annual Report 2011
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not separate the hybrid contract and treats the hybrid financial instrument as a whole for accounting purposes, recognizing it in "Financial assets at fair value through profit or loss". The host contract that is not a derivative is treated separately for accounting purposes. • Derivatives Financial derivatives are instruments which, in addition to giving rise to a profit or loss, may, in certain conditions, allow for all or part of the credit and/ or market risks associated with balances and transactions to be offset, using interest rates, certain indices, the prices of certain securities, the cross exchange rates of various currencies or other similar benchmarks as underlying elements. The Group uses financial derivatives traded on organized markets or traded bilaterally with the counterparty over the counter (OTC). Financial derivatives are used to trade with customers who apply for them, to manage risks on the Group's own positions (hedging derivatives) or to profit from changes in their prices. Financial derivatives that cannot be accounted for as hedging operations are considered to be derivatives held for trading. The conditions that must be satisfied for hedge accounting to be applied are as follows: i) The financial derivative must hedge against the risk of changes in the value of assets and liabilities due to fluctuations in interest rates and/or exchange rates (fair value hedges), the risk of changes in the estimated cash flows generated by financial assets and liabilities, commitments and transactions deemed to be highly probable (cash-flow hedges) or the risk on the net investment in a foreign operation (hedge of net investments in foreign operations). ii) The financial derivative should effectively eliminate some risk inherent to the hedged item or position for the entire scheduled term of the hedge. It must therefore be effective prospectively, effective at the time the hedge is contracted under normal conditions and effective retrospectively, and there must be sufficient evidence that the hedge will remain effective for the entire life of the hedged item or position. To guarantee that hedges are effective prospectively and retrospectively, the Group uses the corresponding effectiveness tests, which demonstrate that the change in the fair value of the hedging instrument is closely correlated to the change in the fair value of the hedged item. Under current legislation, a hedge is assumed to be effective when the cumulative change in the fair value of the hedging Index Annual Report 2011
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instrument is between 80% and 125% of the cumulative change in the fair value of the hedged item. If a derivative that initially passed the effectiveness test subsequently ceased to satisfy the requirements, from this point onwards it would be classified for accounting purposes as a derivative held for trading and the rules for termination of hedges would be applied. iii) Adequate documentary evidence must be kept to show that the financial derivative was contracted specifically to serve as a hedge for certain specific balances and transactions and to demonstrate the method by which the effectiveness of the hedge was intended to be achieved and measured, provided that this method is consistent with the manner in which the Group manages its own risks. Hedges may be applied to individual items or balances or to portfolios of financial assets and liabilities. In the latter case, the set of financial assets or liabilities being hedged must share the same type of risk. This is deemed to be the case whenever the individual items hedged show a similar sensitivity to changes in the hedged risk.
II. Classification of financial assets for measurement purposes In general terms, financial assets are classified for measurement purposes into one of the following categories: • Financial assets at fair value through profit or loss. This financial asset portfolio consists of two sub-categories: o Financial liabilities held for trading: this subcategory includes financial assets that are acquired with a view to generating short-terms gains on fluctuations in their price or that form part of a portfolio of financial instruments identified and managed jointly in respect of which there is evidence of recent action to obtain short-term gains. Derivatives not designated as accounting hedges are also included in the held-for- trading portfolio. o Other financial assets at fair value through profit or loss: this subcategory includes hybrid financial assets not held for trading that are measured entirely at fair value and financial assets not held for trading that are managed jointly with financial liabilities and derivatives for the purpose of significantly reducing overall exposure to interest rate risk. Index Annual Report 2011
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• Held-to-maturity investments This category includes debt securities with fixed maturities and fixed or determinable cash flows that the Group's management has, on acquisition or at any time thereafter, the positive intention and financial capacity to hold to maturity.
• Available-for-sale financial assets. These include debt securities not considered as "Loans and advances", "Held- to-maturity investments" or "Financial assets at fair value through profit or loss" and equity instruments issued by subsidiaries, associates or joint ventures, provided that they have not been classified as "Financial assets at fair value through profit or loss".
• Loans and advances. This category includes debt securities where, although there is no active market and fair value measurement is not required, the cash flows generated are of a determined or determinable amount and the full amount paid out by the Group will be recovered, except in the event of issuer insolvency. Accordingly, unlisted debt securities, financing extended to third parties in the course of the Group's normal lending activities and debts contracted by buyers of goods and users of the services the Group provides are recognized in this item.
III. Classification of financial assets for presentation purposes In the accompanying consolidated statement of financial position, financial assets are presented in the various categories into which they are grouped for management and measurement purposes (see section II above), unless they must be recognized as "Non-current assets held for sale" or correspond to "Cash and balances with central banks", "Hedging derivatives" and "Equity investments", in which case they are shown separately. Financial assets are broken down, according to type of instrument, into the following consolidated statement of financial position items: • Cash and balances with central banks: cash balances and demand deposits with the Bank of Spain and other central banks. • Loans and advances to credit institutions: credit facilities of any nature granted to credit institutions. Index Annual Report 2011
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• Loans and advances to customers: balances outstanding on all credit facilities and loans granted by the Group, except for marketable securities, money market deposits, finance lease receivables and loans and advances to credit institutions. • Debt securities: bonds and other securities that create or recognize a debt for their issuer, that accrue interest, either implicitly or explicitly, at a contractually-established rate and are represented either by physical instruments or by book entries, irrespective of their issuer. • Other equity instruments: financial instruments issued by other entities, including shares and non-voting stock, that have the substance of equity instruments for the issuer, unless they are treated as investments in subsidiaries, jointly-controlled entities or associates. Shares and units in investment funds are included in this item. • Trading derivatives: fair value in favour of the Group of derivatives that do not form part of accounting hedges. • Other financial assets: other balances receivable by the Group in respect of transactions that do not have the substance of a loan (cheques drawn on credit institutions, balances pending collection from clearing houses and settlement agencies in respect of transactions on securities exchanges and other organized markets, cash advanced as collateral, capital calls, and fees and commissions receivable for financial guarantees, pending collection, inter alia). • Hedging derivatives: fair value in favour of the Group of derivatives designated as hedging securities in accounting hedges.
IV. Classification of financial liabilities for measurement purposes Financial liabilities are classified for measurement purposes into one of the following categories: • Other financial liabilities at fair value through profit or loss. o Financial liabilities held for trading: includes financial liabilities issued with the intention of repurchasing them in the near future or contracted with a view to generating short-term gains on fluctuations in their price, financial derivatives not considered accounting hedges and financial liabilities arising from the outright sale of financial assets acquired under reverse repurchase agreements or borrowed ("short positions"). Index Annual Report 2011
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o Other financial liabilities at fair value through profit or loss: includes all hybrid financial liabilities not held for trading that have to be measured entirely at fair value. At 31 December 2011 and 2010 the Group had no liabilities in this category. • Financial liabilities at amortized cost. Financial liabilities not included in any of the aforementioned categories and that arise in the course of banks' ordinary deposit-taking activities, irrespective of type of instrument and residual term to maturity.
V. Classification of financial liabilities for presentation purposes In the accompanying consolidated statement of financial position, financial liabilities are presented in the various categories into which they are grouped for management and measurement purposes (see section II above), unless they must be recognized as "Liabilities associated with non-current assets held for sale" or correspond to "Hedging derivatives" or "Shares redeemable on demand" in which case they must be shown separately. Financial liabilities are included, according to the type of instrument, in one of following items: • Deposits from central banks and credit institutions: deposits of any nature, including loans and money market deposits received from the Bank of Spain and other central banks, as well as loans and money market deposits received from credit institutions. • Customer deposits: all repayable balances received in cash by the Group, other than those represented by marketable securities, money market deposits and subordinated liabilities. • Marketable debt securities: bonds and other bearer debt securities and promissory notes, including cash or treasury bonds, covered bonds, debentures, commercial bills and similar instruments, except for those classified as subordinated liabilities. Index Annual Report 2011
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VI. Reclassifications between portfolios of financial instruments Reclassifications between portfolios of financial instruments are made only in the following circumstances: i) Except where exceptional circumstances as described in point iv) below apply, financial instruments classified as at fair value through profit or loss cannot be reclassified either inside or outside this category of financial instruments once acquired, issued or assumed. ii) If, due to a change in the Bank's intention or capability, a financial asset ceases to be classified as held to maturity, it is reclassified to "Available-for- sale financial assets". All financial instruments classified as held to maturity must be treated in the same way in such situations, unless the reclassification takes place in circumstances permitted under applicable regulations (sales very close to the maturity date or after collecting virtually all the principal of the financial asset, etc). No sales not permitted under the regulations applicable to financial assets classified as held to maturity were made in 2011 and 2010. iii) Following a change in the Bank's intention or capability or at the end of the two-year penalty period established in the regulations applicable to situations where financial assets classified as held to maturity are sold, debt securities classified as available-for-sale may be reclassified as held to maturity. In this case, the fair value of these financial instruments on the date of transfer becomes their new amortized cost and the difference between this amount and their redemption value is recognized in income applying the effective interest rate method over the instrument's residual term to maturity. No reclassifications of the kind described in the preceding paragraph were carried out in 2011 and 2010. iv) A financial asset other than a financial derivative may be classified outside financial instruments held for trading and available-for-sale financial assets if no longer held for the purpose of selling or repurchasing it in the near-term, provided that one of the following circumstances applies: a) In rare and exceptional circumstances, except where the assets in question could have been classified in "Loans and advances". For such purposes, rare and exceptional circumstances mean those arising as a result of a specific event that is unusual and highly unlikely to recur in the foreseeable future. Index Annual Report 2011
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b) If the Bank has the intention and capability to hold the financial asset for the foreseeable future or until maturity, provided that upon initial recognition the asset would have met the definition of loans and advances. Where these circumstances exist, the asset is reclassified at its fair value on the date of reclassification, without reversing any gain or loss, and its fair value becomes its new amortized cost. Assets that are reclassified in this way cannot under any circumstances be further reclassified as financial instruments held for trading.
e) Measurement and recognition of gains and losses on financial asset and liabilities As a general rule, financial instruments are initially recognized at their fair value, which, barring evidence to the contrary, will be acquisition cost. They are subsequently re- measured at each reporting date in accordance with the following criteria:
I. Measurement of financial assets Financial assets are measured at "fair value", except for loans and advances, held-to-maturity investments, equity instruments whose fair value cannot be reliably determined, and financial derivatives that have such equity instruments as their underlying and are settled by delivery of the same, without deducting any transaction costs that may be incurred upon their sale or other form of disposal. The fair value of a financial instrument on a given date is the amount at which the asset could be exchanged between knowledgeable, willing parties in an arms' length transaction. The most objective and common reference for the fair value of a financial instrument is the price that would be paid for it on an organized, transparent and deep market ("quoted price" or "market price"). Where there is no market price for a given financial instrument, or its market price is considered unrepresentative, fair value is estimated on the basis of the price established in recent transactions involving similar instruments or, in the absence thereof, of valuation techniques broadly accepted in the international financial community, taking into account the specific features of the instrument to be measured and, particularly, the various types of risk associated with it. Notwithstanding the foregoing, the inherent limitations of existing valuation techniques and any inaccuracies in the assumptions these techniques require may be such that the fair value resulting from such estimates does not exactly coincide with the price at which the assets or liabilities could be bought or sold on the measurement date. Index Annual Report 2011
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Loans and advances and held-to-maturity investments are measured at amortized cost using the effective interest rate method. Amortized cost means the cost of acquisition of a financial asset or liability, plus or minus, as applicable, principal repayments and accumulated amortization or depreciation (as reflected in the income statement) of the difference between initial cost and redemption value on maturity. The effective interest rate is the discount rate that exactly matches the initial amount of a financial instrument to the cash flows it is expected to generate over its residual term, based on contractual terms and conditions but without taking losses due to future credit risk into consideration. For fixed-income financial instruments, the effective interest rate is the interest rate contractually established at the time of acquisition plus, where applicable, any fees and commissions that, given their nature, are comparable to an interest rate. In the case of floating-rate financial instruments, the effective interest rate is the prevailing rate of return applicable until the date of the next interest rate revision. Equity securities whose fair value cannot be determined in a sufficiently objective manner and financial derivatives that have those securities as their underlying and are settled by delivery of those securities are measured at acquisition cost adjusted, where appropriate, for any impairment losses that they may have suffered. The fair value of standard financial derivatives held for trading is taken to be their daily trading price. If, for exceptional reasons, no trading price can be established for a particular date, they are measured using methods similar to those applied for OTC derivatives. The fair value of derivatives not traded on organized markets is taken to be the sum of the future cash flows generated by the instrument, discounted to the measurement date ("present value" or "theoretical closing price") using methods broadly accepted on the financial markets: net present value (NPV), option pricing models, etc. Financial assets designated as hedged items or hedging instruments are measured as established in Note 2.e.IV).
II. Measurement of financial liabilities Financial liabilities are generally measured at amortized cost, as defined above, except when included under "Financial liabilities held for trading" or "Financial liabilities at fair value through profit or loss", in which case they are measured at fair value. Index Annual Report 2011
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III. Recognition of gains and losses Gains and losses on financial instruments are recognized on the basis of the portfolio in which they are classified, in line with the following criteria: • For financial instruments at fair value through profit or loss, changes in fair value are recognized directly in the consolidated income statement, distinguishing, in the case of instruments that are not derivatives, between the portion attributable to income accrued on the instrument, which is recognized as interest or dividends as applicable, and the rest of the change in fair value, which is recognized in "Gains (losses) on financial assets and liabilities". Income generated by financial instruments included in this category is calculated using the effective interest method. • For financial instruments at amortized cost, changes in fair value are recognized when the financial instrument is derecognized and, in the case of financial assets, when the asset becomes impaired. Income generated by financial instruments included in this category is calculated using the effective interest method. • The following criteria are applied to available-for-sale financial assets: (i) Interest accrued is calculated using the effective interest rate method and, where applicable, dividends earned taken to consolidated income; (ii) Impairment losses are recognized as described in Note 2.g); (iii) Translation differences are taken directly to consolidated income when they correspond to cash assets and recognized temporarily in equity as "Valuation adjustments" until they are derecognized, at which point the differences are taken to income, when they correspond to non-cash item; (iv) Other valuation adjustments are recognized directly in equity until they are derecognized. IV. Hedging transactions The Group presents and measures individual hedges (specifically distinguishing between hedged items and hedging instruments) on the basis of their classification and according to the following criteria: • Fair value hedges: hedge exposure to changes in fair value. In fair value hedges, the gain or loss arising upon measurement of both the hedging instruments and the hedged items, in the latter case due to changes in value attributable to the hedged risk, are recognized directly in the consolidated income statement. • Cash flow hedges: hedge exposure to changes in cash flows attributable to a specific risk relating to an asset or liability or a forecast transaction. The gain or loss arising upon measurement of hedging instruments qualifying as Index Annual Report 2011
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effective is recognized temporarily under equity as "Valuation adjustments" at the lowest of the following amounts: the gain or loss accumulated on the hedging instrument since the start of the hedge or the accumulated change in the present value of the expected future cash flows of the hedged item since the start of the hedge. At 31 December 2011 and 2010 the Group had no hedges of this kind.
The gains or losses accumulated on each hedge are transferred to consolidated income in the periods in which the hedged items affect income, unless the hedge corresponds to a forecast transaction that results in recognition of a non-financial asset or liability, in which case it is included in the cost of this asset or liability. In order for derivative transactions to be treated as hedging transactions, they must be adequately documented and must be guaranteed to be highly effective in offsetting the hedged risk. The Group uses financial derivatives (swaps and options) traded on bilateral markets (OTC). These transactions are used to hedge the interest rate risk on certain fixed-rate customer deposits and the market risk on customer deposits remunerated at a rate indexed to the performance of shares, baskets or stock market indexes. To ensure maximum effectiveness, the Group only enters into hedging transactions when the principle terms and conditions of the hedging transaction match those of the hedged item exactly. Derivatives embedded in other financial instruments or in host contracts are recognized separately as derivatives when their risks and other features are not closely related to those of the host contracts and when the said host contracts are not classified as "Other financial assets or liabilities at fair value through profit or loss" or as "Financial instruments held for trading". All financial derivatives that do not qualify for hedge accounting are treated for accounting purposes as "Trading derivatives"". Index Annual Report 2011
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f) Transfers and derecognition of financial and asset liabilities The accounting treatment of transfers of financial assets depends on the degree to which the associated risks and rewards are transferred to third parties. The following cases can be distinguished: I. If substantially all the risks and rewards are transferred, the transferred financial asset is derecognized and any right or obligation retained or created in the transfer recognized separately. II. If substantially all the risks and rewards associated with the transferred financial asset are retained, the transferred financial asset is not derecognized and continues to be measured by the same criteria used before the transfer. Nonetheless, in these cases the following items are recognized: • An associated financial liability for an amount equal to the payment received, which is subsequently measured at amortized cost. • Both the income generated by the transferred (but not derecognized) financial asset and the expense generated by the new financial liability. III. If substantially all the risks and rewards associated with the financial asset transferred are neither transferred nor retained, the following distinction is made: • If the seller does not retain control of the transferred financial asset: the asset is derecognized and any right or obligation retained or created as a result of the transfer is recognized separately. • If the seller retains control of the transferred financial asset, the asset continues to be recognized on the reporting date at an amount equivalent to its exposure to potential changes in value and a financial liability associated with the transferred asset is recognized. The net amount of the transferred asset and associated liability will be the amortized cost of the rights and obligations retained, if the transferred asset is measured at amortized cost, or the fair value of the rights and obligation retained, if the transferred asset is measured at fair value.
At 31 December 2011 and 2010, the Group had assets transferred prior to 1 January 2004 for amounts of EUR 68,546 thousand and EUR 86,438 thousand, respectively, which, in accordance with prevailing legislation, have been derecognized from the consolidated statement of financial position. Index Annual Report 2011
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g) Impairment of financial assets The carrying amount of a financial asset is adjusted by the Group via a charge against income when there is objective evidence that an impairment loss has occurred.
Debt instruments Objective evidence of impairment in debt instruments (loans and debt securities) is deemed to exist when events have occurred since their initial recognition that have a negative impact on their future cash flows. Objective evidence of impairment is determined individually for significant debt securities and individually and collectively for groups of securities that are not individually significant. In the case of debt instruments measured at amortized cost, the amount of the impairment loss is equivalent to the difference between the carrying amount and the present value of estimated future cash flows, although the Group takes the market price of quoted securities as a substitute for the present value of future cash flows, provided this price is sufficiently reliable. The amount of the impairment loss is recognized in income, with a balancing entry made to correct the value of the assets. When the likelihood of recovering the loss is considered remote, this amount is derecognized. Impairment losses on available-for-sale financial assets are equal to the positive difference between acquisition cost (net of any principal repayments) and fair value less any impairment loss previously recognized in the consolidated income statement. Where there is objective evidence that the decline in fair value is due to impairment, the unrealized losses recognized in "Valuation Adjustments" under "Equity" are taken directly to income. Subsequent recoveries of impairment losses on debt instruments are recognized in income in the period in which the recovery takes place. The recognition of interest accruals is suspended in respect of debt instruments classified by the Group as impaired and instruments for which impairment losses have been assessed collectively because they have payments more than three months past due. The Group also treats debt instruments and contingent exposures and commitments for which there is objective evidence of impairment, essentially in the form of arrears, defaults, refinancing and data indicating that not all the future cash flows agreed may be recovered or, in the case of equity instruments, that their carrying amount may not be recovered in full, as impaired assets (doubtful debt). Index Annual Report 2011
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When the likelihood of recovering a recognized impairment is considered remote, the amount of the impairment (default) is derecognized, without prejudice to any actions that may be taken to seek collection of the amount receivable. The present value of expected future cash flows is calculated by discounting flows at the effective interest rate of the transaction (if contracted at a fixed rate) or at the effective interest rate of the transaction on the discount date (if contracted at a floating rate). In determining expected future cash flows, the Group takes account of guarantees, risk rates and the circumstances in which collections are expected to be made. A debt security is impaired due to insolvency when there is evidence of deterioration in the obligor's ability to pay (client risk) or an incidence of country risk, the latter being understood as the risk affecting debtors resident in a given country due to circumstances specific to that country other than normal commercial risk. To determine impairment losses on these assets, the Group assesses the potential losses as follows: • Individually, for all significant debt instruments and all debt instruments that, though not significant individually, cannot be subcategorized into portfolios of instruments with similar characteristics in terms of age of past-due amounts, type of guarantee or collateral, sector of activity, geographical region, etc. • Collectively, for all debt instruments not identified individually, in portfolios of instruments with similar characteristics based on counterparty, transaction status, type of collateral or guarantee and age of past-due amounts. For each risk group, the Group establishes the minimum impairment losses (identified losses) that should be recognized in the consolidated annual financial statements according to a default calendar based on past experience within the Group and sector. • In addition to the recognition of identified losses, the Group recognizes a global impairment allowance for losses incurred on debt instruments not identified as impaired (standard risk), corresponding to the statistical loss pending allocation to specific transactions, taking historical loss experience and other circumstances known at the date of the financial statements into account. Because the Group does not have sufficient statistical information on its historical impairment loss experience, it has used the parameters established by the Bank of Spain based on its own experience and information it has on the sector. These data are updated regularly to reflect changing conditions in the sector and the economy as a whole. Index Annual Report 2011
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Thus, underlying impairment losses incurred are determined by applying percentage impairment rates to debt instruments not measured at fair value through profit or loss and to contingent exposures classified as standard risk. These percentages vary according to the risk category to which the instruments has been assigned (risk-free, low risk, medium-low, medium- high and high).
Equity instruments Objective evidence that equity instruments are impaired is deemed to exist when, as a result of a loss event or combination of events occurring subsequent to their initial recognition, their carrying amount can no longer be recovered in full. Impairment losses on equity instruments measured at fair value and recognized in "Available-for-sale financial assets" are calculated as the difference between acquisition cost and fair value less previously recognized impairment losses. Unrealized losses recognized directly in equity in "Valuation adjustments" are taken to income when it is determined that the decline in fair value is due to impairment. If all or part of the impairment loss is subsequently recovered, the corresponding amount is recognized in equity in "Valuation adjustments". Impairment losses on equity instruments measured at cost and recognized in "Available-for-sale financial assets" is calculated as the difference between their carrying amount and the present value of the expected future cash flows discounted at the market rate of return for similar securities. The amount of the impairment is determined with reference to the equity of the investee, excluding "Valuation adjustments" due to cash flow hedges and adjusted for unrealized capital gains existing on the measurement date. These losses are recognized in consolidated income by directly reducing the carrying amount of the equity instruments. The loss can only be subsequently recovered in the event of sale. Index Annual Report 2011
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h) Financial guarantees Financial guarantees are defined as contracts whereby the Group undertakes to pay specific amounts on behalf of a third party if the latter fails to do so. The main types of contracts included in this category, which are recognized in the memorandum accounts at the end of the consolidated statement of financial position, are financial and technical guarantees, irrevocable documentary credits issued or confirmed by the Group, insurance policies and credit derivatives in which the Group acts as the seller of protection. When the Group issues contracts of this kind, they are recognized in the "Accruals" line under liabilities in the consolidated statement of financial position at fair value and also, at the same time, in the "Other financial assets" line of "Loans and advances" at the present value of the cash flows pending receipt using, for both entries, a discount rate similar to that applied to credits with a similar term and risk extended to the same counterparty by the Group. Subsequent to issuance, contracts of this type are recognized by recording the differences in consolidated income as finance income or fee and commission income, according to whether they correspond to "Other financial assets" or "Accruals", respectively. Financial guarantees are classified on the basis of the default risk assigned to the customer or transaction and, where applicable, an estimate made of the provisions required to cover the credit risk (Note 19). The credit risk is determined by applying criteria similar to those used to quantify impairment losses on financial assets classified as "Loans and advances" (Note 2.g).
i) Property and equipment Property and equipment for own use are presented at acquisition price, discounted pursuant to certain legal regulations and re-measured in accordance with the provisions of the new accounting standards, less the related accumulated depreciation and any impairment losses. Property and equipment is grouped into the following items: property and equipment for own use, investment property, other assets leased out under operating leases and property and equipment assigned to the Social Welfare Fund. In the case of certain assets for own use where there are no restrictions on disposal, the Group has taken as the cost of acquisition at the transition date to IFRS-EU (1 January 2004) the market value of these items obtained in appraisals performed by independent experts (Note 16). Index Annual Report 2011
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All items of property and equipment are depreciated on a straight-line basis according to the estimated years of useful life shown below. The land on which buildings and other structures are constructed has an indefinite life and is not therefore depreciated. Annual provisions for the depreciation of property and equipment are recognized with a balancing entry in the consolidated income statement and are calculated using the following percentage depreciation rates, determined on the basis of the average estimated years of useful life of the related assets:
Annual percentage Buildings for own use 4% Furniture and fixtures 15-20% Computer hardware (*)
(*) Sum-of-years digit method (based on three or four years, depending on the items)
The depreciation periods and methods used for each item of property and equipment are reviewed by the Group as a minimum at the end of each reporting period. Upkeep and maintenance expenses that do not improve the productivity or extend the useful life of the respective assets are charged directly to the consolidated income statement when incurred.
Property and equipment are retired from the consolidated statement of financial position when they are disposed of, including if assigned under finance leases, or when they are permanently withdrawn from use and no future economic benefits are expected to be obtained from their disposal, assignment or abandonment. The difference between the sale price and carrying amount is recognized in the consolidated income statement for the period in which the asset is derecognized. j) Leasing I. Finance leases Finance leases are leases that transfer to the lessee substantially all the risks and rewards of ownership of the leased asset. Finance lease contracts are recognized as follows: Index Annual Report 2011
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When the Group acts as lessor of an asset, the sum of the present value of the lease payments receivable from the lessee plus the guaranteed residual value - which is generally the exercise price of the lessee's call option at the end of the lease term - is recognized under "Loans and Receivables" in the consolidated statement of financial position. The accounting criteria applied to impairment losses and balance sheet derecognition are the same as those applied to other financial assets (Notes 2.f. and 2.g). When the Group acts as lessee, the cost of the leased assets is recognized in the statement of financial position according to the type of asset leased and a liability for the same amount simultaneously recognized. This amount is determined as the lower of the fair value of the leased asset and the present value of all amounts payable to the lessor plus, where relevant, the exercise price of the call option. These assets are depreciated on the same basis as property and equipment for own use. In both cases, the finance income and finance expense generated by the lease contracts are credited or debited to consolidated income, as applicable, such that the return on the assets remains constant over the life of the lease.
II. Operating leases Under operating leases, the lessor retains substantially all the risks and rewards of ownership of the leased asset and therefore continues to recognize ownership thereof. When the Group acts as lessor, it presents the acquisition cost of the leased assets under "Property and equipment" in the consolidated statement of financial position. These assets are depreciated on the same basis as other similar property and equipment for own use and income from the lease contracts is recognized in consolidated income on a straight-line basis. When the Group acts as lessee, lease expenses, including any incentives granted by the lessor, are taken to the consolidated income statement on a straight- line basis. Index Annual Report 2011
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k) Goodwill Goodwill corresponds to payments made by the Group in anticipation of future economic benefits deriving from assets of an acquired entity that cannot be individually and separately identified and recognized. It is recognized only when acquired for consideration in a business combination
Positive differences between the acquisition cost of interests in the capital of associates and the corresponding carrying amounts of the assets acquired, adjusted on the date of first consolidation, are recognized as follows:
• If the excess can be assigned to specific assets of the companies acquired, it is added to the value of assets whose market value is higher than the carrying amount stated in the consolidated statement of financial positions of the companies acquired, or subtracted from the value of liabilities whose market value is lower than the carrying amount, where the accounting treatment is similar to that of the Group's equivalent assets or liabilities, respectively. • Where differences can be assigned to specific intangible assets, they are explicitly recognized in the consolidated statement of financial position provided their fair value at the acquisition date can be measured reliably. • The remaining amount is recognized in the accompanying consolidated statement of financial position as goodwill in "Investments in Associates", which is allocated to one or more specific cash-generating units. Goodwill acquired subsequent to 1 January 2004 is measured at acquisition cost while goodwill acquired prior to that date continues to be recognized at the carrying amount shown on 31 December 2003. At each reporting date, the Group tests for any signs of impairment that has reduced the recoverable value of the goodwill to an amount lower that the net cost recognized and, if so, the loss is recognized via a charge against consolidated income.
Impairment losses recognized for goodwill cannot be reversed in subsequent periods. l) Inventories Inventories include, inter alia, land and other property held by the Group for sale as part of its real estate development activities and any other assets, other than financial instruments, that are held for sale in the ordinary course of its business and are in the process of production, construction or development. Index Annual Report 2011
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Inventories are carried at the lower of cost or net realisable value, the latter being defined as their estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs of sale.
The cost of inventory items that are not tradable in the normal course of business and the cost of goods and services produced and reserved for specific projects are determined individually for each case. The cost of other inventories is determined using the first-in, first-out method (FIFO).
Both reductions and subsequent recoveries in the net realisable value of inventories are recognized in income for the year in which they occur.
The carrying amount of inventories is derecognized from the consolidated statement of financial position and recycled to the income statement as an expense for the period in which the revenue from their sale is recognized.
m) Other provisions and contingencies The Group makes a distinction between provisions and contingent exposures and establishes provisions for the estimated amount necessary to cover present obligations arising as a consequence of past events that are clearly specified as to their nature but uncertain as to their amount and time of cancellation, when it is probable that an outflow of funds including economic benefits will be required to settle them.
Such obligations may arise for the following reasons:
i) A legal or contractual requirement. ii) An implicit or tacit obligation, arising from a valid expectation created by the Group in respect of third parties that it will assume certain kinds of responsibilities. Such expectations arise when the Group publicly accepts responsibilities, and derive from past performance or business policies in the public domain. iii) Near certain changes in the regulations on certain issues. In particular, draft legislation with which the Group will be required to comply. Index Annual Report 2011
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Contingent exposures are possible obligations of the Group that arise out of past events which are contingent upon the occurrence or non occurrence of one or more future events over which the Group does not have control. Contingent exposures include present obligations of the Group where an outflow of funds including economic benefits is unlikely to be required to settle them or, in extremely rare cases, where the amount of the obligation cannot be measured reliably.
Provisions and contingent exposures are classified as probable when they are more likely to occur than not, possible when they are less likely to occur than not, and remote when their occurrence is extremely rare.
The Group includes in the consolidated financial statements all significant provisions and contingent exposures in respect of which the probability of the obligation having to be met is greater than the probability of its not having to be met. Contingent exposures classified as possible are not recognized in the consolidated financial statements but are reported, unless the likelihood of an outflow of funds including economic benefits being required is considered remote.
Provisions are quantified on the basis of the best available information on the consequences of the event at their origin and are estimated at the close of each accounting period. They are used to cover the specific obligations for which they were recognized and are reversed in full or in part when such obligations cease to exist or are reduced.
Provisions for contingent exposures and commitments include the amount of the provisions established to cover contingent exposures - defined as transactions where the Group guarantees the obligations of a third party as a result of financial guarantees granted or contracts of another kind - and contingent commitments - defined as irrevocable commitments that could give rise to the recognition of a financial asset - and the amount of other provisions established by the Group.
At 31 December 2011 and 2010, the Group was potentially facing certain lawsuits, liabilities and obligations derived from the usual course of business. Both the Group's legal advisors and its Directors are of the view that the outcome of these proceedings and claims will have no significant effect beyond that provisioned in the accompanying consolidated financial statements closed at 31 December 2011 and 2010. Index Annual Report 2011
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n) Non-current assets held for sale The Group recognizes as "Non-current assets held for sale" those non-current assets (assets whose realization or recovery is expected to occur more than one year from the reporting date) and disposal groups (groups of assets, together with the liabilities directly related to them, that are earmarked for disposal in a single transaction or as part of a unit or group of units) whose carrying amount is expected to be recovered through their sale, since the asset is in optimum conditions for sale and the sale is highly likely to take place.
Non-current assets held for sale are generally measured at the lower of fair value less costs to sell and carrying amount at the date of classification in this category.
Real estate assets foreclosed or received in settlement of debt, irrespective of the legal form used, are initially recognized at the lower of the carrying amount of the corresponding financial assets, i.e. at their amortized cost, taking into account the estimated impairment (which must be a minimum of 10%) and the market appraisal value of the asset received in its current state of repair, less estimated costs to sell (which shall be no less than 10% of the appraisal value in the asset's current state).
The detail of this line of the consolidated income statement is as follows: Registration fees and taxes paid may be added to the value initially recognized provided that their addition does not raise this amount above the appraisal value less estimated costs to sell referred to in the previous paragraph.
The Group also includes foreclosed assets received in settlement of debt in this category since its intention is to sell them as quickly as possible (within one year). These assets are carried at the lower of fair value and carrying amount. Non- current assets held for sale are not depreciated or amortized as long as they continue to be included in this category.
When they remain on the consolidated statement of financial position for longer than the period initially envisaged for their sale, they are tested for impairment so that any loss sustained since acquisition may be recognized.
Impairment losses on these assets, understood as initial or subsequent reductions in their carrying amount to their fair value (less costs to sell), are recognized in consolidated income. Any subsequent recovery in their value up to an amount equal to the impairment loss previously recorded is also recognized in income. Index Annual Report 2011
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In those cases where the Group finances the sale of non-current assets to the purchaser, gains or losses arising upon realization of the assets are recognized in consolidated income in the reporting year in which the sale is realized, unless the buyer is a related party or doubts exist as to the recovery of the financed amounts, in which case the gain is accrued over the period in which the collections are made. o) Foreign currency transactions I. Functional currency The Group's functional currency is the euro. Consequently, all non-euro balances and transactions are considered foreign currency balances and transactions.
II. Translation criteria for foreign currency balances Balances receivable and payable in foreign currency are translated to euros at the spot rate on initial recognition. The following translation criteria are subsequently applied: • Cash items denominated in foreign currency are translated to their functional currencies using the official average Spanish spot rate at the close of the year. • Non-cash items measured at historical cost are translated at the exchange rate applying on the date of acquisition. • Non-cash items recognized at fair value are translated at the exchange rate applying on the date of fair value measurement. • Income and expenses are translated at the exchange rate applying on the transaction date or using the average exchange rate for the period for all transactions performed in that period. • Equity items are translated at historical exchange rates.
III. Recognition of translation differences Translation differences arising on the translation of foreign currency balances are generally recognized in income, except for differences arising on non-cash items. At 31 December 2011, the value of assets and liabilities denominated in foreign currencies amounted to EUR 15,183 thousand and EUR 13,900 thousand, respectively (compared with EUR 12,159 thousand and EUR 11,576 thousand at 31 December 2010). Index Annual Report 2011
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p) Recognition of income and expense As a general rule, income is recognized at the fair value of the consideration received or to be received, less trade and other discounts. Where the cash inflows are deferred, fair value is determined by discounting the future cash flows. The recognition of any revenue item in consolidated income or consolidated equity is subject to fulfilment of the following prerequisites:
• The amount can be reliably estimated. • It is probable that the Bank will receive the economic benefits of the transaction. • The information must be verifiable.
The main criteria applied by the Group for the recognition of income and expense are described below:
I. Interest and similar income and expense As a general rule, interest and similar income and expense items are recognized according to their accrual periods, using the effective interest rate method. Dividends received from other companies are recognized in income at the time the Group becomes entitled to receive them.
II. Fees, commissions and similar items Income and expense arising from fees, commissions and similar charges are recognized in income according to various criteria, depending on their type. The main fee and commission items are: • Fees related to financial assets and liabilities at fair value through profit or loss, which are recognized when paid. • Fees originating from transactions or services that continue over an extended period, which are recognized over the life of the transaction or service. • Fees relating to a service rendered in a single act, which are recognized when the single act is carried out. Index Annual Report 2011
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The Group classifies fees and commissions received or paid as follows: Finance fees and commissions Fees of this type, which form an integral part of the effective return or cost of a finance transaction, are collected or paid in advance and generally recognized in income over the expected term of the finance, net of direct costs, as an adjustment to the cost incurred or effective revenue generated on the transaction. Non-finance fees and commissions Fees of this type arise when services are rendered by the Group and are recognized in income over the period in which the service is rendered or, if relating to a service rendered in a single act, when the single act is carried out. III. Non-finance income and expense These are recognized for accounting purposes on an accrual basis. q) Swaps of property and equipment and intangible assets When property and equipment and intangible assets are the subject of swaps, the Group measures the assets received at their fair value plus, if applicable, any cash considerations delivered in exchange, unless clearer evidence of the fair value of the asset received exists. When it is not possible to measure fair value reliably, the assets received are recognized at the carrying amount of the assets delivered plus, if applicable, any cash considerations delivered in exchange.
Losses on asset swaps are recognized directly in the consolidated income statement, while gains are only recognized if the swap is of a commercial nature and the fair values of the swapped assets can be reliably measured. r) Social Welfare Fund The Group recognizes mandatory allocations to the Education and Development Fund under liabilities and as an expense for the year. Voluntary contributions are recognized as a distribution of earnings.
Applications of this fund are normally credited to cash and banks, unless the amount of the related welfare project corresponds to the Group's own activities, in which case the Education and Development Fund is reduced and a revenue item is simultaneously recognized in the consolidated income statement. Index Annual Report 2011
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s) Off-balance sheet customer funds The Group recognizes funds deposited by third parties for investment in investment funds, pension funds and endowment policies at their fair value in memorandum accounts, making a distinction between funds managed by Group companies and funds marketed by the Bank but managed by non-Group third parties.
The memorandum accounts also include the fair value or, if no reliable fair value estimate is available, cost value of assets acquired by the Group on behalf of third parties as well as debt securities, equity instruments, derivatives and other financial instruments held in custody, under guarantee or on commission at the Group on behalf of those responsible for the same.
The fees charged for these services are recognized in the consolidated income statement as "Fee and commission income".
t) Personnel expenses and post-employment benefits Short-term benefits Short-term employee benefits are measured, without discounting, at the amount payable for services received and generally recognized as personnel expenses for the year plus an accrued liability of an amount equal to the difference between the total expense and the amount already settled. Pension commitments The only Group company that has significant pension commitments to its employees is the Caja Rural de Navarra itself. In accordance with the current collective wage agreement, Caja Rural de Navarra is obliged to supplement the state social security system benefits accruing to widows and orphans of employees deceased in the course of duty. It must also pay a seniority bonus to employees who leave the Bank due to retirement or serious full and permanent disability after twenty or more years' service, the amount of which bonus is established in the collective agreement. The Bank has covered all the aforementioned commitments through various policies contracted with an insurance company. Index Annual Report 2011
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The Bank establishes defined benefit plans to provide for its pension commitments and commissions independent experts to perform the corresponding annual actuarial appraisals, based on financial and biometric assumptions. The usual cost corresponding to this annual risk is covered by means of a premium that the Bank also pays annually. The Bank calculates the present value of its legal and underlying defined benefit pension obligations at the reporting date net of any actuarial gains or losses, past service costs pending recognition and the fair value of plan assets, as established in applicable legislation. The figure thus obtained is recognized as a provision for defined benefit pension funds: • They are owned by a legally separate third party that is not related to the Group. • They can be used only to pay or finance commitments with employees. • They can be returned to the Bank only if all employee benefit commitments have been settled or if they are to be used to reimburse the Group for employee benefits already paid. • They are not non-transferable securities issued by the Bank. The net amount of service costs for the current year, interest expense, expected return on plan assets, actuarial gains and losses, cost of past service and the effect of any plan reductions or settlements is recognized in consolidated income for the year. Past service cost is recognized on a straight-line basis in the consolidated income statement unless the changes to the plan are conditional upon the employee remaining in the Bank's service for a specific period of time, in which case the expense is distributed on a straight-line basis over this period. The main assumptions used to measure the value of these commitments at 31 December 2011 and 2010 were:
Mortality table ...... GK 95 Survival table ...... GR 95 / PERM 2000P for new contracts Technical interest rate agreed in policies Varying between 2.25% and 5.62% depending on benefit rates Annual salary increase rate ...... 2.00% Estimated retirement age ...... 65 years Turnover ...... 0 Index Annual Report 2011
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A breakdown of the actuarial valuation performed, setting out the value of pension commitments, the fair value of the assets (insurance policies) used to cover these commitments and the amounts recognized under consolidated assets and liabilities and in the consolidated income statement is given below. Based on the aforementioned assumptions, the value of pension commitments and liabilities is: Thousands of euro 2011 2010
Pension commitments to retired employees 167 170 Possible commitments to serving employees 2,527 2,300 Accrued 677 617 Not accrued 1,850 1,683
Commitments to be covered 844 787
Fair value of plan assets (insurance policies) 844 787
Assets (Liabilities) to be recognized in the statement of financial position - -
Expenses recognized in income as a result of policies underwritten by the Bank in 2011 and 2010 came to EUR 75 thousand and EUR 77 thousand, respectively (Note 33).
Termination benefits Termination benefits are recognized as a provision for pension funds and similar obligations and as personnel expenses only when it can be demonstrated that the Group has committed to terminating the employment of an employee or group of employees before the normal retirement date or to paying termination benefits to employees as incentives in a voluntary redundancy offer. Index Annual Report 2011
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u) Income tax The income tax expense for the year is recognized in the consolidated income statement except when it results from a transaction recognized directly in equity, in which case the income tax effect is also recognized in equity.
The amount of the income tax expense corresponds to the tax payable on taxable profit for the year, adjusted for changes arising in the year due to temporary differences, tax relief, tax credits and tax loss carry forwards.
Deferred tax assets and liabilities include the aforesaid temporary differences, which are the amounts expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities and their related tax bases.
Deferred tax assets, tax relief, tax credits and tax loss carry forwards are only recognized if it is considered likely that the Group will have sufficient future taxable profits against which they can be offset.
Deferred tax liabilities are always recognized, except those arising upon the initial recognition of goodwill or the deferred tax liabilities associated with investments in subsidiaries, associates and jointly-controlled entities, provided that the investor is able to control the timing of the reversal of the temporary difference and, in addition, that it is probable that the difference will not reverse in the foreseeable future. Notwithstanding the above, deferred tax assets and liabilities are not recognized in connection with the initial recognition of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither accounting profit nor taxable profit.
Deferred tax assets and liabilities are reviewed on each reporting date to determine whether they remain valid and any corrections identified as necessary in the review are then made.
Income and expenses recognized directly in equity are accounted for as temporary differences. v) Consolidated statement of recognized income and expense and consolidated statement of changes in equity These statements included in these consolidated financial statements show all changes in equity occurring in the reporting period. The main features of the information presented in each part of the statement are outlined below. Index Annual Report 2011
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Consolidated statement of recognized income and expense
This statement shows the income and expense generated by the Group as a result of its activities in the reporting period, distinguishing between items of income and expense that are recognized in profit and loss for the year and items of income and expense that, as required under current regulations, are recognized directly in equity. This financial statement therefore presents: • Consolidated profit for the year • The net income or expense temporarily recognized in equity as valuation adjustments. • The net income or expense definitively recognized in equity. • The income tax accrued for the items indicated in the two preceding points. • The total recognized income and expense, calculated as the sum of the above. Changes in income and expense recognized in equity as valuation adjustments can be broken down into: • Measurement gains (losses): reflecting the amount of income, net of expenses arising in the year, recognized directly in consolidated equity. Amounts recognized in this line in the course of the year are maintained in this item, even if recycled to income in the same year, at the initial value of other assets and liabilities or else are reclassified to another item. • Amounts transferred to the consolidated income statement: reflecting the amount of measurement gains or losses recognized previously in consolidated equity, including in the same year, that is recognized in the consolidated income statement. • Amounts transferred to the initial carrying amount of hedged items: reflecting the amount of measurement gains or losses recognized previously in consolidated equity, including in the same year, that is recognized in the initial carrying amount of the assets or liabilities as a result of cash flow hedges. • Other reclassifications: consisting of transfers between valuation adjustment items made in the year in accordance with the criteria established in prevailing regulations. Index Annual Report 2011
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The balance of these items is presented gross, with the corresponding tax effect recognized in "Income tax", except, as indicated above, in the case of valuation adjustments in respect of companies accounted for by the equity method.
Consolidated statement of changes in equity
This statement shows all changes in equity, including those resulting from changes in accounting policies and the correction of errors. The statement therefore provides a reconciliation between the carrying amount of each item of consolidated equity at the beginning and end of the period, grouping movements by type under the following headings: • Adjustments due to changes in accounting criteria and the correction of errors: reflecting changes in equity resulting from retrospective adjustments to financial statement balances because of changes in accounting principles or to correct errors. • Income and expense recognised in the period: representing the aggregate value of all the aforementioned items recognized in the statement of recognized income and expense. • Other changes in equity: representing the remaining items recognized in equity, including capital increases or decreases, distribution of earnings, treasury share transactions, equity-based payments, transfers between equity items, and any other increase or decrease in equity.
Consolidated cash flow statement
The specific concepts used in the consolidated cash flow statement are defined as follows: i) Cash flows are inflows and outflows of cash and cash equivalents, that is, investments that are short-term, highly liquid and subject to a low risk of changes in value. ii) Operating activities are the Group's typical activities and other activities that cannot be classified as investing or financing and interest paid on financing received, even if it relates to financial liabilities classified as financing activities. Index Annual Report 2011
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iii) Investing activities are those relating to the acquisition, sale or disposal by other means of long-term assets and other investments not included in cash and equivalents, such as property and equipment, intangible assets, equity investments, non-current assets and associated liabilities held for sale, equity instruments classified as available for sale that are strategic investments and financial assets included in the portfolio held to maturity. iv) Financing activities are activities that result in changes in the size and composition of the consolidated net assets and liabilities that are not part of operating activities. The Group treats the balances included under "Cash and balances with central banks" in the consolidated statement of financial position as cash and cash equivalents.
3. ERRORS AND CHANGES IN ACCOUNTING ESTIMATES In addition to the comments contained in Note 1.b), in 2011 and up to the date of preparation of the consolidated financial statements, no errors or changes in accounting estimates occurred that due to their size require disclosure in the consolidated annual financial statements prepared by the Governing Board.
4. APPROPRIATION OF EARNINGS The appropriation of the parent company's net profit for 2011 that the Bank's Governing Board will propose to members for approval at the Annual General Meeting, together with the appropriation for 2010 approved at the General Meeting held on 6 May 2011, is as follows: Thousands of euro 2011 2010 Profit for the year before mandatory allocation to the Education and Development Fund and after Income Tax 35,002 35,454 To dividends and remuneration (2,022) (1,598)
Total retained earnings or surplus available 32,980 33,856
To the Statutory Reserve Fund 29,682 30,470 To the Education and Development Fund 3,298 3,386
Total appropriated 32,980 33,856
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The profits or losses of consolidated subsidiaries will be appropriated as agreed at their respective General Shareholders' Meetings.
5. REMUNERATION AND OTHER BENEFITS PAID TO KEY MANAGEMENT PERSONNEL The parent company considers certain members of the Management Committee, as well as the members of its Governing Board, to be key management personnel.
Remuneration paid to members of the Governing Board Members of the parent company's Governing Board receive no remuneration for the work they perform as board members, except for per diem allowances and other expenses.
The table below sets out the gross remuneration received by members of the parent company's Governing Board in 2011 and 2010:
Thousands of euro Board members 2011 2010
José Luis Barriendo Antoñanzas 24 21 Ignacio Terés Los Arcos 4 3 José Javier Ignacio Goñi Pérez 1 2 Francisco Javier Moreno Moreno 1 1 José María Arizaleta Nieva 3 3 Isidro Bazterrica Mutuberría 2 1 Luis Recarte Goldaracena 3 2 José Angel Ezcurra Ibarrola 3 3 José Luis Sarabia Moreno 2 1 Pedro Buldain Zozaya 2 1 Melchor Miranda Azcona 2 2 José Javier López Morrás 2 2 Pedro María Beorlegui Egea 1 1 Luis Miguel Mateo Mateo 2 2 Francisco Javier Artajo Carlos 1 - Jesús Andrés Mauleón Arana 1 -
Total 54 45
The Bank has no pension commitments in respect of any current or former member of the parent company's Governing Board. Index Annual Report 2011
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Credit facilities Any credit facilities extended to members of the parent company's Governing Board at 31 December 2011 and 2010 are detailed in Note 37.
Remuneration paid to senior executives Ordinary remuneration accrued by the Bank's senior executives in 2011 and 2010 totalled EUR 981 thousand and EUR 977 thousand, respectively. This amount was shared among eight persons, including the Managing Director and other members of the Management Committee. The Bank has no additional commitments with any member of senior management other than those corresponding to them as employees of the Bank (Note 2.t).
6. RISK MANAGEMENT a) Credit risk Credit risk is the possibility of losses being incurred as a result of non-fulfilment of contractual obligations on the part of the Group's counterparties, the Bank being the Group company most exposed to this risk. In the case of repayable finance extended to third parties (in the form of credit facilities, loans, deposits, securities and other instruments), credit risk is a consequence of non-recovery of principal, interest and other items in the amount, within the deadlines and pursuant to the other terms and conditions set out in the credit agreements. Off-balance sheet risk arises when counterparties fail to fulfil their obligations in respect of third parties and the Group is required to assume these obligations itself by virtue of its contractual undertaking.
Credit risk is the most significant risk to which the Group is exposed in the execution of its banking activities and is defined as the risk of a counterparty being unable to repay the amounts it owes in full.
The Group's credit risk management policies are thus defined and structured based on objective, professional criteria while also being designed to allow maximum flexibility in final customer decisions.
Management of credit risk in the Bank is an integrated, streamlined process that is initiated as soon as a customer applies for a loan through our branch network and ends when the funds lent out have been repaid in full. The Bank has clearly established and defined its credit risk acceptance criteria and the minimum documentation necessary to comply with prevailing regulations, referring always to the key issues of liquidity, security, profitability and collateral business. Index Annual Report 2011
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With a view to establishing more flexible and specialized procedures for examining and analysing customer credit applications, the Bank has set up dedicated units for each segment or type of credit facility that, due to their specific characteristics, is or should be processed in a particular way. In this way, we are able to provide a highly professional but flexible service to customers while at the same time ensuring the precision in decision-making that allows us to build a credit portfolio of the highest quality.
Credit risk management encompasses three key areas:
Money markets Credit risk on money market positions is limited as wherever possible the Bank uses the services of Banco Cooperativo Español, the bank providing centralized services to the cooperative banks making up the Caja Rural Group.
Debt instruments The breakdown of these instruments by credit rating at 31 December 2011 and 2010 was follows:
Credit rating 2011 2010 S&P´s Moody´s Fitch 1 90.56% 86.87% AAA to AA- Aaa to Aa3 AAA to AA- 2 4.50% 6.45% A+ to A- A1 to A3 A+ to A- 3 2.99% 3.95% BBB+ to BBB- Baa1 to Baa3 BBB+ to BBB- 4 1.42% 0.99% BB+ to BB- Ba1 to Ba3 BB+ to BB- 5 0.14% 0.28% B+ to B- B1 to B3 B+ to B- 6 0.32% 1.37% Less than B- Less than B3 Less than B- Unrated 0.07% 0.09% 100.00% 100.00%
Loans and advances Caja Rural de Navarra's risk management procedure is initiated as soon as a customer applies for a loan and ends when the funds lent have been repaid in full. When granting loans and credit facilities, the Bank places great importance on case-by-case analyses that take account of the type of applicant (individual, company, agricultural sector, etc.), the type of facility (current loan, consumer credit, investment, trade discounting, etc.), the applicant's repayment capacity, and the guarantees provided (personal, mortgage, collateral, etc.). Index Annual Report 2011
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Before the Bank can perform this analysis, certain information must be collected, essentially from three sources: • Customers • External sources (RAI, the Bank of Spain Register of Defaults, other registers, etc.) • Internal records on existing Bank customers (average balances, payment history, etc.)
Once approved and arranged, all loans and credit facilities are subject to ongoing monitoring, which may take the form of either of the following: in the case of high-risk customers (either individually or as part of an economic group), the Bank monitors financial position, any increases in system debt, payment history, etc.; for all other customers, all transactions that result in payment incidents are monitored. In addition to monitoring individual customers and customer groups, the Group monitors its investment portfolio by product, by interest rate and by decision-making centre, with a view to identifying potential changes in portfolio returns and the manner in which credit facilities are being granted (amounts, rates, charges, etc.) such that decisions affecting the investment policy to be adopted at any given time can be taken as quickly as possible. The following table gives a breakdown of credit risk exposure at the close of 2011 and 2010: Thousands of euro 2011 2010 Loans and advances to customers 6,321,950 6,136,998 Loans and advances to credit institutions 404,010 252,687 Debt securities 732,437 442,851 Derivatives 15,619 14,940 Contingent exposures 942,753 1,009,203
Total risk 8,416,769 7,856,679
Credit lines drawable by third parties 962,035 1,162,792
Total exposure 9,378,804 9,019,471 Index Annual Report 2011
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The distribution of credit risk by risk category is as follows:
Thousands of euro 2011 2010 No perceivable risk 1,813,931 1,382,720 Low risk 2,380,361 2,246,344 Low-medium risk 1,766,926 1,747,703 Medium risk 2,316,484 2,337,207 Medium-high risk 87,937 97,564 High risk 51,130 45,141
Total risk 8,416,769 7,856,679
The breakdown of the amortized cost of credit risks benefiting from guarantees and credit enhancements in addition to the personal guarantee of the debtor at 31 December 2011 and 2010 is as follows:
2011 2010 Thousands % of total Thousands of % of total of euro risk euro risk Loans secured by mortgages on finished homes where the outstanding loan is less than 80% of the appraisal value 2,305,288 27.44% 2,143,513 27.29% Of which: Personal loans 2,164,672 25.76% 1,998,553 25.45% Transactions with other mortgage guarantees 1,559,150 18.56% 1,518,393 19.33% Of which: Personal loans 956,711 11.39% 911,864 11.61% Loans secured by other collateral (pledge of cash or securities) 53,217 0.63% 55,450 0.71% Loans secured by public entities, credit institutions or mutual guarantee schemes 98,716 1.17% 98,760 1.26% Loans secured by other individuals or entities 783,455 9.32% 791,914 10.08%
Information on the distribution of "Loans and advances to customers" by sector, region, delinquency ratio, provisions and risk concentration is provided below.
Sector 2011 2010 Farming and cattle-raising 3.58% 3.64% Industry and construction 21.29% 20.89% Services 19.58% 20.60% Personal and other 55.55% 54.87% Index Annual Report 2011
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Region 2011 2010 Navarre 60.93% 63.72% Guipuzcoa 16.67% 15.33% La Rioja 9.26% 9.41% Alava 6.11% 5.77% Vizcaya 7.03% 5.77%
Impaired assets and impairment adjustments
2011 2010 Total impaired assets 253,193 221,442 Total loans and advances to customers, gross 6,509,378 6,294,230 (before valuation adjustments) NPL ratio 3.89% 3.52% Total valuation adjustments for impairment of 188,640 158,856 financial assets NPL coverage 74.50% 71.74% Coverage of total loans and advances to 2.90% 2.52% customers
In terms of credit risk concentration, the Bank of Spain's regulations establish that exposure to any one customer or group of customers constituting an economic group should be no more than 25% of the Group's eligible capital base. Additionally, the sum of all major risks (defined as exposures equivalent to more than 10% of the Group's equity) should be less than eight times the eligible capital base. The Group's eligible capital base is used for the purpose of calculating the Bank of Spain solvency ratio. The Group complies with all legal limits established in this regard.
At 31 December 2011 only one group was considered a "major risk", in that exposure (a total amount of EUR 139,512 thousand) exceeded 10% of capital. However, at 17.22% of capital, this exposure is well below the limit set in the Bank of Spain regulations. At 31 December 2010, there were two groups (with total exposure of EUR 219,811 thousand), that exceeded 10% of capital. Exposure to these groups was equivalent to 28.78% of capital. Index Annual Report 2011
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b) Market risk The Group is exposed to market risk due to its banking activities. However, given that the Caja engages in only a limited level of market trading activity, the main controls it applies for market risk take the form of various limits on market activity including limits on fixed income and equity exposures, monthly stop- losses and a global annual stop-loss. The Caja also applies concentration limits on exposures to securities and economic sectors, as well as on positions in foreign currency.
In addition, to measure the risks assumed on certain portfolios, the Bank also performs VaR (Value at Risk) analyses and analyses of portfolio sensitivity to interest rate fluctuations. b.1.) Interest rate risk
Interest rate risk is managed by the Assets and Liabilities Committee (ALC), which meets regularly to systematically analyse exposure to this risk and to plan and manage the balance sheet. The ALC sets guideline risk policies to be applied at each given time, which policies are designed to enable the Group to maximize its finance income and ensure optimal balance sheet financing. Interest rate risk in the whole balance sheet is measured by calculating interest gaps and performing duration analyses and simulations. For these purposes, the Bank has the support and assistance of the Asset and Liabilities Department of Banco Cooperativo Español, which draws up regular reports on interest rate risk. The Bank's statement of financial position has a high level of immunity to interest rate fluctuations. At 31 December 2011, it was estimated that a 100 basis point decline in interest rates would decrease net interest income by 0.89% (at 31 December 2010 the impact of such a movement was estimated to be a 3.76% rise in net interest income). The table below details the Bank's exposure to interest rate risk, grouping the carrying amount of financial assets by the interest rate review date or by the maturity date in the case of fixed-rate transactions. In order to draw up the table below, the contracted interest rate review dates have been used in the case of floating-rate transactions. For fixed-rate transactions, the contractual maturity date has been used. In the case of traditional banking liabilities, such as current or savings accounts, these have been classified according to the balance and the remuneration of each account: Index Annual Report 2011
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balances of up to 90,000 euros at interest rates of less than or equal to 0.5% are classified in the "Between 2 and 3 years" tranche; balances of up to 90,000 euros with interest rates of over 0.5% are classified in other tranches up to 1 year, in line with the said interest rate; and lastly, balances of over 90,000 euros are considered more sensitive and are classified in the shortest tranches based on the Bank's experience, with more than 50% in the "Less than 1 month" tranche.
Thousands of euro Less than 1 to 3 3 months 1 to 2 2 to 3 3 to 4 4 to 5 More than 2011 1 month months to 1 year years years years years 5 years Total Assets
Loans and advances to credit institutions 404,010 ------404,010 Loans and advances to customers 976,164 1,529,073 3,598,492 117,989 27,827 18,643 11,806 41,956 6,321,950 Debt securities 40,640 758,355 225,477 43,280 117,390 99,330 25,222 33,323 1,343,017 Total 1,420,814 2,287,428 3,823,969 161,269 145,217 117,973 37,028 75,279 8,068,977
Liabilities
Deposits from credit institutions 234,633 380,866 538,469 11,879 10,614 598,494 3,524 5,877 1,784,356 Customer deposits 889,579 1,415,072 2,120,288 256,455 178,150 144,052 828,361 - 5,831,957 Debt securities 1,049 20,562 50,124 - - - - - 71,735 Total 1,125,261 1,816,500 2,708,881 268,334 188,764 742,546 831,885 5,877 7,688,048
Gap 295,533 470,928 1,115,088 (107,065) (43,547) (624,573) (794,857) 69,402 380,929 Cumulative gap 295,553 766,481 1,881,569 1,774,504 1,730,957 1,106,384 311,527 380,929 380,929
Thousands of euro Less than 1 to 3 3 months 1 to 2 2 to 3 3 to 4 4 to 5 More than 2010 1 month months to 1 year years years years years 5 years Total Assets
Loans and advances to credit institutions 252,066 621 ------252,687 Loans and advances to customers 887,862 1,385,943 3,652,614 108,642 31,042 18,191 15,384 37,320 6,136,998 Debt securities 84,753 782,311 43,800 122,029 9,246 266 99,500 34,823 1,176,728 Total 1,224,681 2,168,875 3,696,414 230,671 40,288 18,457 114,884 72,143 7,566,413
Liabilities
Deposits from credit institutions 90,370 183,134 373,004 184,078 11,438 9,694 222,151 7,093 1,080,962 Customer deposits 943,705 1,472,894 2,295,113 129,225 110,380 117,598 810,434 - 5,879,349 Debt securities 1,191 269,940 22,654 - - - - - 293,785 Total 1,035,266 1,925,968 2,690,771 313,303 121,818 127,292 1,032,585 7,093 7,254,096
Gap 189,415 242,907 1,005,643 (82,632) (81,530) (108,835) (917,701) 65,050 312,317 Cumulative gap 189,415 432,322 1,437,965 1,355,333 1,273,803 1,164,968 247,267 312,317 312,317
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b.2.) Price risk
This is defined as the risk arising as a result of changes in market prices caused either by factors specific to the instrument or by factors affecting all instruments traded on the market. The Group uses the VaR method to manage its portfolios of "Other equity instruments", using data series of one or two years, calculated with a 99% confidence level, and time horizons of one day and one month. Using these assumptions, the "Other equity securities" portfolio would have a one-day VaR of EUR 14 thousand at 31 December 2011 (compared with EUR 648 thousand at 31 December 2010). Since most of the portfolio of listed equities is classified as available-for-sale, the greatest impact would be on equity. b.3.) Exchange rate risk
The Group had no significant exposure to exchange rate risk on the date of these consolidated annual financial statements. c) Liquidity risk This risk reflects the potential difficulties the Group could experience in raising or accessing liquid assets in sufficient quantity and value to cover its payment obligations at any given time.
At Caja Rural de Navarra, as a credit institution focussed on retail banking, this risk derives mainly from the existence of a very significant volume of liabilities (customer deposits) payable on demand, but for which the timing of repayment is not certain. However, past experience demonstrates that the performance of this category of liabilities tends to be very stable over time.
Caja Rural de Navarra monitors the performance of those lines of the statement of financial position that affect its liquidity on an ongoing basis, keeping within certain limits and using dedicated tools to predict potential fluctuations that may require action to sustain short-, medium- and long-term liquidity. These controls are carried out by the ALC. Index Annual Report 2011
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A breakdown of financial securities by residual term to maturity at 31 December 2011 and 2010 is given below. The maturity dates used to draw up the table are those set out in the corresponding contractual terms and conditions. For the purposes of preparing the following table, the criteria described in the section on interest rate risk were used to group customer demand deposits, current accounts and savings by tranche.
Thousands of euro Less than 1 1 to 3 3 months to 1 More than 2011 Demand month months year 1 to 5 years 5 years Total Assets
Loans and advances to credit institutions 180,409 223,601 - - - - 404,010 Loans and advances to customers - 342,782 253,890 583,918 1,622,538 3,518,822 6,321,950 Debt securities - 3,367 72,903 227,617 607,806 431,324 1,343,017 Total 180,409 569,750 326,793 811,535 2,230,344 3,950,146 8,068,977
Liabilities
Deposits from credit institutions - 153,235 304,059 364,952 874,589 87,521 1,784,356 Customer deposits - 709,124 734,694 2,080,966 1,693,381 613,792 5,831,957 Debt securities - 1,049 20,562 50,124 - - 71,735 Total - 863,408 1,059,315 2,496,042 2,567,970 701,313 7,688,048
Gap 180,409 (293,658) (732,522) (1,684,507) (337,636) 3,248,833 380,929 Cumulative gap 180,409 (113,249) (845,771) (2,530,278) (2,867,904) 380,929 380,929
Thousands of euro Less than 1 1 to 3 3 months to 1 More than 2010 Demand month months year 1 to 5 years 5 years Total Assets
Loans and advances to credit institutions 143,724 108,342 621 - - - 252,687 Loans and advances to customers - 316,380 230,940 579,251 1,565,102 3,445,325 6,136,998 Debt securities - 67,989 4,000 82,150 322,062 700,527 1,176,728 Total 143,724 492,711 235,561 661,401 1,887,164 4,145,852 7,566,413
Liabilities
Deposits from credit institutions - 7,122 108,078 194,831 687,232 83,699 1,080,962 Customer deposits - 685,342 725,956 2,236,313 1,523,392 708,346 5,879,349 Debt securities - 1,191 12,290 280,304 - - 293,785 Total - 693,655 846,324 2,711,448 2,210,624 792,045 7,254,096
Gap 143,724 (200,944) (610,763) (2,050,047) (323,460) 3,353,807 312,317 Cumulative gap 143,724 (57,220) (667,983) (2,718,030) (3,041,490) 312,317 312,317
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As the table shows, the Group has a short-term liquidity gap, as is normal in retail banking, although as mentioned above historical data reveal a high degree of stability in its deposits. Despite the foregoing, given the current market situation, the Group has enhanced the system of alerts and procedures that enable it to identify unusual movements in deposits. As for liabilities raised on wholesale markets, in 2012 the Group only needs to redeem EUR 27 million. There are no liabilities of this kind falling due in 2013.
The Group has set itself a target minimum net liquidity ratio of between 5% and 8% of total assets. This ratio is calculated as follows:
Net Liquidity Ratio = (Liquid Assets - Liquid Liabilities)/Total Assets (Minimum 5% - Maximum 8%)
Note: liquid liabilities include wholesale financing.
Calculating its minimum liquidity requirement in this way ensures that the Group is not at any time dependent on wholesale financing. The ALC monitors and controls compliance with the liquidity target and foreseeable movement in the Group's liquidity over the next year on a regular basis. The criteria used to assess liquidity levels are based on the Bank's past experience and on comparisons with other financial institutions with similar profiles. At 31 December 2011 and 2010, the net liquidity ratio was within the established range. d) Fair value of financial instruments This risk corresponds to changes occurring in the fair value of financial instruments, as defined in Notes 2.e.I and 2.e.II.
As described in Note 2.e., except for financial instruments classified as "Loans and advances" or "Held-to-maturity investments" and equity instruments whose fair value cannot be reliably measured or derivative securities with such equity instruments as their underlying, the Group's financial assets are recognized in the consolidated statement of financial position at their fair value. Likewise, except for financial liabilities designated as "Financial liabilities at amortized cost", all the Group's financial liabilities are recognized in the consolidated statement of financial position at their fair value. Index Annual Report 2011
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In addition, certain items recognized in "Loans and advances" and "Financial liabilities at amortized cost" could be related to fair value hedges (Note 2.e.IV), their value having been adjusted by an amount equivalent to the changes in fair value resulting from the hedged risk, mainly interest rate risk.
The table below shows the fair values, at the close of 2011 and 2010, of the financial assets and liabilities indicated below grouped according to the different measurement methods used by the Group to determine fair value:
Thousands of euro 2011 Total Fair Fair value hierarchy Balance value Level 1 Level 2 Level 3
Cash and balances with central banks 32,193 32,193 - - 32,193 Financial instruments held for trading 17,317 17,317 2,640 14,677 - Other assets at fair value through profit or loss 155 155 - 155 - Available-for-sale financial assets 769,855 750,570 658,060 30,167 62,343 Loans and advances 6,784,735 7,350,671 - 7,320,605 30,066 Held-to-maturity investments 38,227 37,946 1,627 36,319 - Hedging derivatives 942 942 - 942 -
Total financial assets 7,643,424 8,189,794 662,327 7,402,865 124,602
Financial instruments held for trading 5,061 5,061 - 5,061 - Financial liabilities at amortized cost 7,139,076 7,160,999 - 7,045,837 115,162 Hedging derivatives 9,657 9,657 - 9,657 -
Total financial assets 7,153,794 7,175,717 - 7,060,555 115,162
2010 Total Fair Fair value hierarchy Balance value Level 1 Level 2 Level 3
Cash and balances with central banks 33,159 33,159 - - 33,159 Financial instruments held for trading 15,673 15,673 2,262 13,411 - Other assets at fair value through profit or loss 2,828 2,828 - 2,828 - Available-for-sale financial assets 480,011 461,518 372,000 32,638 56,880 Loans and advances 6,468,267 7,027,378 - 7,000,751 26,627 Held-to-maturity investments 33,367 33,471 1,703 31,768 - Hedging derivatives 1,529 1,529 - 1,529 -
Total financial assets 7,034,834 7,575,556 375,965 7,082,925 116,666
Financial instruments held for trading 6,982 6,982 - 6,982 - Financial liabilities at amortized cost 6,578,894 7,280,363 - 7,165,211 115,152 Hedging derivatives 10,879 10,879 - 10,879 -
Total financial assets 6,596,755 7,298,224 - 7,183,072 115,152
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The following criteria were used to determine fair values:
• Level 1: the prices quoted in active markets for these financial instruments. • Level 2: the prices quoted in active markets for similar instruments or other valuation techniques in which all significant inputs are based on directly or indirectly observable market data. • Level 3: valuation techniques in which some of the significant inputs are not based on observable market data.
The particular valuation techniques used and the assumptions made for determining fair values are as follows:
• Cash and balances with central banks: The fair value of these assets is considered equal to their carrying amount since they are either redeemable on demand or payable in the near term. • Debt securities: For government bonds and certain fixed-income securities issued by credit institutions, the price quoted on active markets is used (Level 1). For some fixed-income securities, measurement methods based on discounting cash flows have been applied, using the yield curves and market spreads of similar instruments (Level 2). For all other debt securities, prices calculated by accredited external appraisers are used (Level 3). • Equity instruments: The price quoted on active markets has been used (Level 1). For some venture capital funds and investments in foreign financial institutions fair value has been calculated using valuation techniques in which all the significant inputs are based on market data (Level 2). All other instruments not included in Level 1 and Level 2 have been valued at their acquisition cost net of any impairment identified (Level 3). In addition, at 31 December 2011 and 2010 the Group held unlisted equity instruments classified as available for sale which were recognized at historical cost, for amounts of EUR 19,561 thousand and EUR 18,765 thousand, respectively, and are therefore excluded from the above table (Note 10). • Loans and advances to customers: Fair value has been estimated by discounting future cash flows using the yield curve at the close of each year, using a discount factor corresponding to the residual term between the date of analysis and the date of revision or redemption. Likewise, the level of credit risk provisions for the credit risk portfolio has been quantified in accordance with the accounting standard applicable and is considered sufficient to cover Index Annual Report 2011
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the credit risk in question. However, in an economic and financial crisis of the kind we are currently experiencing, and given that there is no market for these financial assets, the amount at which such assets might be exchanged between interested parties could be lower than the net asset value recognized since the potential buyer may wish to discount not only losses incurred and already recognized in accordance with applicable accounting standards but also the losses that it is estimated might occur in future in the event of a prolongation of the current economic situation of exceptional length and impact. • Financial liabilities at amortized cost: Fair value has been estimated by discounting future cash flows using the yield curve at the close of each year, using a discount factor corresponding to the residual term between the date of analysis and the date of revision or maturity. In the case of demand deposits, there are assumed to be no significant differences between fair value and carrying amount since the vast majority of such accounts are benchmarked to a floating interest rate and/or, if not benchmarked, have a term to maturity of less than one year.
Differences between the fair value and carrying amount of financial instruments may exist for the following reasons:
• In the case of fixed-income instruments, fair value changes according to movements in market interest rates. The longer the instrument's residual term to maturity, the greater the change in fair value. • In the case of instruments bearing interest at a floating rate, fair value may differ from carrying amount if the spread on the benchmark interest rate has changed since the instrument was issued. Assuming spreads remain stable, fair value is equal to carrying amount only on repricing dates. On all other dates, flows that are already certain are subject to interest rate risk. Index Annual Report 2011
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e) Transparency of information on loans for construction and real estate development, home loans, assets acquired in settlement of debts and finance requirements and strategies In accordance with the Bank of Spain's transparency guidelines on loans for construction and real estate development, home loans and assets acquired in settlement of debt and assessment of market financing needs and with Bank of Spain Circular 5/2011, of 30 November, the Group reports as follows: Information on loans for construction and real estate development
The value of loans for construction and real estate development and associated coverage at 31 December 2011 and 2010 was as follows:
2011 Valuation adjustments for Excess over impairment of financial value of assets Gross value collateral Specific provisions Loans for construction and real estate development (Spanish business) 615,186 110,781 37,584 Of which doubtful: 100,572 32,787 27,613 Of which substandard: 66,478 17,432 9,971 Memorandum items: Defaulted assets Carrying Memorandum items: amount - Total loans and advances to customers, excluding public sector (Spanish businesses) 6,233,798 - Total assets (all businesses) 7,991,099 - Total generic provisions (all businesses) 60,938
2010 Excess over Valuation adjustments for value of impairment of financial Gross value collateral assets Specific provisions Loans for construction and real estate development (Spanish business) 612,148 208,342 33,809 Of which doubtful: 86,498 40,587 21,829 Of which substandard: 79,833 20,490 11,919 Memorandum items: Defaulted assets 5,502 Carrying Memorandum items: amount - Total loans and advances to customers, excluding public sector (Spanish businesses) 6,051,784 - Total assets (all businesses) 7,381,716 - Total generic provisions (all businesses) 46,142
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The table below shows disclosures of finance for construction, real estate development and home loans at 31 December 2011 and 2010:
Loans for construction and real estate development Gross value 2011 2010
Unsecured 33,085 38,225 Secured by mortgages 582,101 573,923 Finished buildings 181,411 176,008 Homes 151,716 151,033 Other 29,695 24,975 Buildings under construction 228,918 213,092 Homes 226,681 210,362 Other 2,237 2,730 Land 171,772 184,823 Developed land 146,673 182,252 Other land 25,099 2,571 Total 615,186 612,148
Information on home loans
The breakdown of home loans at 31 December 2011 and 2010, is as follows:
2011 2010 Of which Of which Gross value doubtful Gross value doubtful
Home loans 3,062,871 29,033 2,892,527 25,721 Unsecured 215,354 2,934 236,068 2,444 Secured by mortgages 2,847,517 26,099 2,656,459 23,277
At 31 December 2011 and 2010 the breakdown of home loans secured by mortgages according to the percentage loan to latest available value (LTV) is as follows:
Loan to value 2011 Between Between Between 40% and 60% and 80% and Above Up to 40% 60% 80% 100% 100% Total
Gross value 411,604 663,223 1,037,123 665,664 69,903 2,847,517 Of which doubtful: 2,401 3,830 6,005 8,424 5,439 26,099
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Loan to value 2010 Between Between Between 40% and 60% and 80% and Above Up to 40% 60% 80% 100% 100% Total
Gross value 379,818 616,669 946,391 637,925 75,656 2,656,459 Of which doubtful 1,311 2,872 7,964 9,630 1,500 23,277
Information on assets acquired in settlement of debt
The detail of assets acquired in settlement of debt at 31 December 2011 and 2010 is as follows:
Thousands of euro 2011 2010 Gross Carrying Gross Carrying debt amount Provisions debt amount Provisions
1. Real estate assets acquired under loans granted to construction and real estate development companies 25,981 21,081 7,420 14,091 12,915 3,266 1.1. Finished buildings 5,476 4,226 1,250 4,984 4,172 812 1.1.1. Homes 5,414 4,177 1,237 4,984 4,172 812 1.1.2. Other 62 49 13 - - - 1.2. Buildings under construction ------1.2.1. Homes ------1.2.2. Other ------1.3. Land 20,505 16,855 6,170 9,107 8,743 2,454 1.3.1. Developed land 10,681 7,461 3,220 711 347 364 1.3.2. Other land 9,824 9,394 2,950 8,396 8,396 2,090 2. Real estate assets originating from loans to individuals to fund home purchases 9,466 5,759 3,707 6,525 2,541 3,984 3. Other real estate assets received in settlement of debt 6,041 3,485 2,556 4,382 1,167 3,215 4. Equity instruments, shareholdings and loans to non-consolidated companies holding such assets 15,553 9,759 5,794 15,553 12,511 3,042 Total 57,045 40,084 19,477 40,551 29,134 13,507
Policies for managing problematic assets
As part of its general risk management policy, Caja Rural de Navarra has specific processes for dealing with assets from the construction and real estate development sector, which has been particularly hard hit by the current crisis. Index Annual Report 2011
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These processes aim to sustain, wherever possible and without impairing the recovery of contracted risks, the business continuity and viability of companies and other customers, mitigating the risks to which the Group is exposed. This means seeking alternatives that allow projects to be completed and sold, analysing where risks can be renegotiated if the customer's credit position improves, with a view to keeping the debtor in business. The process considers the Bank's track record with the debtor, their manifest ability to pay and potential improvements to the customer's expected loss, looking to increase loan collateral without increasing risk exposure to the customer.
The Group also supports developers once developments have been completed, working in partnership to manage and speed up sales.
If the above approach fails or is insufficient, other alternatives are analysed, such as taking assets in lieu of payment or buying assets and, as a last resort, legal proceedings to foreclose the buildings.
All assets taken onto the Group's balance sheet are managed with a view to their disposal or lease. For this purpose, the Group has operating companies that specialize in the sale or leasing of real estate assets. The Group has the resources to develop these strategies and coordinate the work of the subsidiaries and branch network
Assessment of market financing needs
Caja Rural de Navarra has historically adhered to a liquidity management policy under which wholesale financing that involves future repayment commitments is not included in the calculation of its net liquidity. This means that the Group's liquidity assumptions do not include the issue of securities on wholesale markets that entail future repayment commitments as sources of funding that can be used to grow loans and advances.
Notwithstanding the foregoing, the Bank has concluded a number of issues on the market for the following purposes:
• To increase available liquidity; Index Annual Report 2011
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• To gain experience of different forms of financing in different markets and instruments; • To generate collateral discountable at the European Central Bank and/or useable as security for repurchase transactions with clearing houses.
Overall, the Group foresees no need for wholesale financing due to its easy repayment schedule and current level of available liquidity.
In addition, Caja Rural de Navarra has various contingency plans for obtaining liquidity. These include a sizeable stock of assets discountable at the European Central Bank and the availability of unused credit lines under the Caja Rural Group's treasury agreement with Banco Cooperativo Español. In the medium to long term the Group will maintain the same policy of not using market financing to grow its lending business, while at the same time maintaining the aforementioned contingency plans.
7. CASH AND BALANCES WITH CENTRAL BANKS The detail of this line of the statement of financial position at 31 December 2011 and 2010 is as follows:
Thousands of euro 2011 2010 Cash 32,193 33,159 Bank of Spain - - Valuation adjustments - - 32,193 33,159
The Bank complies with the minimum reserve requirement pursuant to the provisions of Article 10 of Regulation (EC) 1745/2003 of the European Central Bank, of 12 September 2003, regulating the maintenance of minimum reserves held indirectly through an intermediary (Note 11).
For purposes of preparation of the consolidated cash flow statement, the Group treated the balance of this line of the consolidated statement of financial position as "cash or cash equivalents". Index Annual Report 2011
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8. FINANCIAL INSTRUMENTS HELD FOR TRADING The breakdown of this line of the statement of financial position by location of risk, type of counterparty and type of instrument is as follows:
Thousands of euro Assets Liabilities 2011 2010 2011 2010 By region Spain 17,070 15,673 5,061 6,982 Other countries 247 - - - Total 17,317 15,673 5,061 6,982 By counterparty Credit institutions 13,100 12,539 1,871 989 Other resident sectors 3,970 3,134 3,190 5,993 Other non-resident sectors 247 - - - Total 17,317 15,673 5,061 6,982 By type of instrument Debt securities - - - - Deposits from credit institutions - - - - Equity instruments 2,640 2,262 - - Trading derivatives 14,677 13,411 5,061 6,982 Total 17,317 15,673 5,061 6,982
The fair value of items included in “Financial instruments held for trading” was calculated using valuation techniques based on market data
Financial instruments held for trading. Equity instruments The breakdown of this line of the consolidated statement of financial position is as follows: Thousands of euro 2011 2010 Shares in credit institutions 293 198 Shares in Spanish companies 2,100 2,064 Shares in foreign companies 247 - Total 2,640 2,262
All securities classified as "Equity instruments" at 31 December 2011 and 2010 were shares listed for trading on official markets. Index Annual Report 2011
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Financial instruments held for trading. Trading derivatives At 31 December 2011 and 2010 this item reflected primarily financial swaps related to securitization transactions made by the Group, and transactions contracted to hedge the market risk associated with structured customer deposits incorporating an embedded derivative.
Details of the notional and fair values of the financial derivatives recognized as "Trading derivatives", classified by type of market, counterparty, residual term to maturity and type of risk, are as follows:
Thousands of euro Notional value Fair value Fair value Memorandum accounts Assets Liabilities 2011 2010 2011 2010 2011 2010 By type of market Bilateral (OTC) markets 1,260,690 1,436,969 14,677 13,411 5,061 6,982 TOTAL 1,260,690 1,436,969 14,677 13,411 5,061 6,982
By type of product Swaps 786,009 954,587 9,616 6,433 - 4 Options 474,681 482,382 5,061 6,978 5,061 6,978 TOTAL 1,260,690 1,436,969 14,677 13,411 5,061 6,982
By counterparty Resident credit institutions 1,023,363 1,159,539 12,807 12,341 1,870 6,982 Other resident sectors 237,327 277,430 1,870 1,070 3,191 - TOTAL 1,260,690 1,436,969 14,677 13,411 5,061 6,982
By residual term to maturity Less than 1 year 115,360 65,046 829 1,318 829 1,320 1 to 5 years 283,398 356,466 3,097 4,048 3,097 4,048 More than 5 years 861,932 1,015,457 10,751 8,045 1,135 1,614 TOTAL 1,260,690 1,436,969 14,677 13,411 5,061 6,982
By type of risk Interest rate risk 786,009 954,587 9,616 6,433 - 4 Equity risk 474,681 482,382 5,061 6,978 5,061 6,978 TOTAL 1,260,690 1,436,969 14,677 13,411 5,061 6,982
The notional and/or contractual value of the formal derivative contracts does not represent the real risk assumed by the Group as the net position is obtained by offsetting and/or grouping together these financial instruments. Index Annual Report 2011
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9. OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS The breakdown of financial assets included in this category at 31 December 2011 and 2010, by location of risk, type of counterparty and type of instrument, is as follows:
Thousands of euro 2011 2010 By region Spain 155 2,802 Valuation adjustments - 26 Total 155 2,828 By counterparty Credit institutions 155 2,802 Valuation adjustments - 26 Total 155 2,828 By type of instrument Hybrid financial instruments 155 2,802 Valuation adjustments - 26 Total 155 2,828
The "Hybrid financial assets" line reflects certain pool contracts with Banco Cooperativo Español, S.A. that entail the assignment of funds for investment in debt and equity instruments. This investment can be unilaterally cancelled by the Bank, within the terms established in each contract, with the Bank assuming the underlying gain or loss existing at that date. Since all the hybrid instrument is measured at fair value, the amount corresponding to the embedded derivative is included in full in the item in which the host contract is recognized, with gains and losses being recognized as a charge or credit to the consolidated income statement.
The average annual interest rate for financial assets included in this portfolio during 2011 was 1.12% (1.05% in 2010), while interest accrued in 2011 on financial assets included in this category was EUR 8 thousand (EUR 30 thousand in 2010). Index Annual Report 2011
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10. AVAILABLE-FOR-SALE FINANCIAL ASSETS The breakdown of this line in the consolidated statement of financial position by region, type of counterparty and type of instrument, is as follows:
Thousands of euro 2011 2010 By region Spain 751,582 431,945 European Union 17,035 47,277 United States of America - - Other countries 1,238 789 Total 769,855 480,011 By counterparty Credit institutions 218,386 76,081 Spanish public sector - - Non-resident government bodies 428,404 258,645 Other resident sectors 88,260 106,124 Other non-resident sectors 34,805 39,161 Total 769,855 480,011 By type of instrument Debt securities 635,280 328,074 Spanish government debt 218,386 76,081 Non-resident government bodies - - Issued by credit institutions 396,156 228,798 Other Spanish fixed-income securities 7,889 7,735 Other non-resident fixed-income securities 12,849 15,460 Equity instruments 134,575 151,937 Shares in credit institutions 32,248 29,847 Shares in Spanish companies 80,278 98,300 Shares in foreign companies 369 490 Units and shares in investment funds 21,680 23,300 Total 769,855 480,011
The average annual interest rate for debt securities included in "Available-for-sale financial assets" in 2011 was 3.15% (2.73% in 2010), while interest accrued in 2011 on these financial assets was EUR 12,331 thousand (EUR 7,887 thousand in 2010). The group had sold, transferred or assigned EUR 134,998 thousand of the securities in this portfolio at 31 December 2011 and none at 31 December 2010 (Note 18). A breakdown by residual term to maturity of debt securities recognized in this line at 31 December 2011 and 2010 is given in Note 6. Index Annual Report 2011
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At the close of 2011 and 2010, the breakdown of "Equity instruments" according to the listing status of the securities included in the entry and the percentage accounted for by each category is as follows:
2011 2010 Thousands of Thousands of euro % of total euro % of total
Listed for trading 53,617 39.84% 77,716 51.15% Not listed for trading 80,958 60.16% 74,221 48.85%
134,575 100.00% 151,937 100.00%
The Group has recognized the following investments measured at fair value under "Equity instruments - Not listed for trading":
Thousands of euro Fair value 2011 2010 Company Banco Cooperativo Español, S.A. (*) 29,350 26,165 Seguros Generales Rural, S.A. de Seguros y Reaseguros (*) 15,149 14,480 Espiga Capital Inversión, Sociedad de Capital Riesgo 15,784 13,659 DZ Bank A.G. 1,114 1,152 Total 61,397 55,456
(*) Due to agreements between existing shareholders, the Group has valued its ownership interest in these companies on the basis of its share in their shareholders' equity at 31 December 2011 and 2010. Index Annual Report 2011
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The detail of investments included in this portfolio that the Group has recognized at cost instead of fair value since it was not possible to reliably determine their fair value, pursuant to requirements set out in Bank of Spain Circular 4/2004 and subsequent amendments thereto, is as follows:
Thousands of euro Carrying amount Company 2011 2010
Kaiku Corporación Alimentaria, S.L. 6,752 6,752 Rural Servicios Informáticos, S.C. 3,096 3,097 AN Avícola Mélida, S.A. (ver Nota 15) 2,270 - Lazora, S.A. 2,000 1,500 Minicentrales Canal de las Bardenas A.I.E. 180 180 Mondragón Navarra, S.P.E., S.A. 751 751 Start-Up Capital Navarra, S.A. 187 151 Biocombustibles de Zierbana, S.A. - 350 Navarra de Suelo Industrial, S.A. - 511 Idifarma Desarrollo Farmaceútico, S.L. 177 897 3P Biopharmaceuticals, S.L. 378 294 Espiga Capital Inversión II, Sociedad de Capital Riesgo de Régimen Simplificado, S.A. 750 750 Caja Rural de Zamora 124 247 Caja Rural de Jaén 495 495 Caja Rural de Córdoba - 600 Caja de Crédito y Ahorro Cooperativo 920 920 Other 1,481 1,270
19,561 18,765
The breakdown of the "Valuation adjustments" shown under equity at 31 December 2011 and 2010 resulting from changes in the fair value of the assets in this portfolio is as follows: Thousands of euro 2011 2010
Debt securities (6,032) (6,356) Equity instruments 10,044 8,916
4,012 2,560
Movements recognized in "Valuation adjustments" corresponding to securities classified in "Available-for-sale financial assets" are detailed in Note 20. Index Annual Report 2011
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Available-for-sale financial assets. Overdue and impaired assets • Debt securities At 31 December 2011 the Group had assets classified as available for sale that had been individually identified as impaired due to the associated credit risk in a gross amount of EUR 9,976 thousand, compared with EUR 9,157 thousand at 31 December 2010. Details of the valuation adjustments recognized by the Group at the 2011 and 2010 accounts close due to the impairment of debt securities included in "Available-for-sale financial assets" are as follows:
Thousands of euro 2011 2010
Opening balance 4,104 3,877
Net impairment losses charged against income for the year 1,567 1,331 Determined individually 1,570 1,354 Determined collectively (3) (23)
Application of balances (570) (1,104)
Closing balance 5,101 4,104 Determined individually 5,062 4,062 Determined collectively 39 42
• Equity instruments In 2011, capital losses net of recoveries on equity instruments for an amount of EUR 723 thousand were identified by the Group and classified as not recoverable, resulting in adjustments to the value of the portfolio in the same amount charged against income. In 2010, net recoveries of valuation adjustments for impairment of equity instruments in an amount of EUR 463 thousand were applied to income for the period. Index Annual Report 2011
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11. LOANS AND ADVANCES The breakdown of this asset item in the consolidated statement of financial position by nature of the related financial instrument is as follows:
Thousands of euro 2011 2010 Loans and advances to credit institutions 403,742 249,776 Loans and advances to customers 6,509,378 6,294,230 Debt securities 59,174 82,141 Total 6,972,294 6,626,147 Valuation adjustments (187,559) (157,880) Valuation adjustments for impairment of financial assets (188,884) (159,587) Other valuation adjustments 1,325 1,707 Total 6,784,735 6,468,267
Loans and advances. Loans and advances to credit institutions The breakdown of this line of the consolidated balance sheet by type of credit facility and the region in which the borrower is resident is as follows:
Thousands of euro 2011 2010 By type Term deposits 202,217 97,968 Reverse repurchase agreements - - Other accounts 181,404 144,736 Other financial assets 20,121 7,072 Total 403,742 249,776 Valuation adjustments 113 83 Total 403,855 249,859 By region Spain 403,742 249,776 Other countries - - Valuation adjustments 113 83 Total 403,855 249,859 By counterparty Euro 389,293 238,311 US dollar 12,366 9,896 Other 2,196 1,652 Total 403,855 249,859
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In accordance with European Central Bank Regulation (EC) 1745/2003 of 12 September 2003, concerning the application of minimum reserves, the Bank uses the services of Banco Cooperativo Español, S.A. for the indirect maintenance of its minimum reserves through a broker, as established in Article 10 of the aforementioned Regulation. Pursuant to this arrangement, the Bank maintains with Banco Cooperativo Español, S.A. a deposit of an amount sufficient to ensure indirect compliance with the minimum reserve ratio, which is included in "Term deposits". The balance of this line at 31 December 2011 was EUR 94,103 thousand (compared with EUR 91,696 thousand at 31 December 2010). Banco Cooperativo Español, S.A. and the rural savings banks and cooperative credit institutions that constitute its membership have concluded agreements whereby members assign funds to Banco Cooperativo Español, S.A. for exclusive investment in the inter-bank and money markets, with members assuming joint liability for any losses that may be incurred as a result of such investments. The liability assumed by the Bank under these agreements amounted to EUR 130,194 thousand and EUR 181,592 thousand at 31 December 2011 and 2010, respectively, and is recognized in "Other contingent exposures" in the memorandum accounts (Note 25). A breakdown of these liabilities by residual term to maturity in 2011 and 2010 is given in Note 6. The average annual interest rate applied to deposits with credit institutions in 2011 was 2.20% (1.08% in 2010). Interest accrued on the financial assets included in this portfolio in 2011 totalled EUR 8,294 thousand (versus EUR 2,512 thousand in 2010). Index Annual Report 2011
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Loans and advances. Loans and advances to customers The breakdown of this item in the consolidated statement of financial position by type and status of facility, borrower sector, region in which the borrower is resident and type of interest rate applied is as follows:
Thousands of euro 2011 2010 By loan type and status Commercial credit 339,591 302,346 Secured loans 3,967,368 3,782,080 Other term loans 1,721,538 1,756,533 Finance leases 91,705 100,896 Repayable on demand and other 63,320 63,774 Other financial assets 72,663 67,159 Doubtful assets 253,193 221,442
Total 6,509,378 6,294,230
Valuation adjustments (187,428) (157,232) Total 6,321,950 6,136,998 By borrower sector Government bodies 88,152 85,214 Other resident sectors 6,227,705 6,046,358 Non-resident sectors 6,093 5,426
Total 6,321,950 6,136,998 By interest rate type Floating 5,962,330 5,810,736 Fixed 547,048 483,494 Total 6,509,378 6,294,230 Valuation adjustments (187,428) (157,232) Total 6,321,950 6,136,998 By region Spain 6,503,010 6,288,478 European Union 5,540 4,689 United States of America - - Other countries 828 1,063 Total 6,509,378 6,294,230 Valuation adjustments (187,428) (157,232) Total 6,321,950 6,136,998
The average annual interest rate applied to the financial instruments included in this item in 2011 was 3.12% (2.85% in 2010). Interest accrued on these financial assets in 2011 was EUR 195,390 thousand (versus EUR 170,022 thousand in 2010). Index Annual Report 2011
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The carrying amount shown in the above table, excluding the portion corresponding to "Other valuation adjustments", represents the Group's maximum level of credit risk exposure in relation to the financial instruments included therein. A breakdown by residual term to maturity is given in Note 6. In years prior to 2011 and 2010 the Group carried out various asset securitization transactions by assigning loans from its portfolio to various securitization funds in which, because of the terms and conditions agreed between the parties for the transfer of these assets, it maintained substantial risks and advantages in their respect (basically, the credit risk on the transferred loans). These transactions therefore remain on the statement of financial position, accounting for amounts of EUR 762,615 thousand and EUR 922,166 thousand at 31 December 2011 and 2010, respectively. In addition, liabilities in the amount of EUR 123,513 thousand and EUR 158,687 thousand were recognized in "Financial liabilities at amortized cost - Customer deposits" in the statements of financial position at 31 December 2011 and 2010, respectively (Note 18). The difference between the liability balances and the carrying amounts of the assets transferred in the securitizations reflects securitization fund assets initially retained or subsequently recovered by the Group which are presented in the aforementioned liability account after netting. The Group transferred assets to the following securitization funds: Rural Hipotecario I, Rural Hipotecario II, Rural Hipotecario III, Rural Hipotecario IV, Rural Hipotecario V, Rural Hipotecario VI, Rural Hipotecario VII, Rural Hipotecario VIII, Rural Hipotecario IX, Rural Hipotecario X, Hipotecario XI, Rural Hipotecario XII, Ruralpyme I, Ruralpyme II and Ruralpyme III (all managed by Europea de Titulización S.A., S.G.F.T.), and AYT FTPyme I (managed by Ahorro y Titulización, S.G.F.T., S.A.). In addition, the Group had subordinated loans in the amount of EUR 28,196 thousand outstanding with the aforementioned securitization funds at 31 December 2011 (versus EUR 29,172 thousand at 31 December 2010). Index Annual Report 2011
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The detail of the valuation adjustments made in relation to transactions classified as "Loans and advances to customers" is as follows:
Thousands of euro Valuation adjustments 2011 2010
Valuation adjustments for impairment of financial assets (188,640) (158,856) Accrued interest 15,660 12,420 Fees and commissions (14,448) (10,796)
(187,428) (157,232)
Loans and advances to customers. Valuation adjustments for impairment of financial assets Details of the movement in 2011 and 2010 in "Valuation adjustments for impairment of financial assets" forming part of the balance of the "Loans and advances to customers" line are as follows: Thousands of euro 2011 2010 Opening balance 158,856 147,048 Impairment losses for the year 55,823 75,145 charged to income: Determined individually 40,689 75,145 Determined collectively 15,134 - Reversals credited to income (13,335) (50,604) Net impairment loss 42,488 24,541 Transferred to defaulted loans (4,097) (6,988) Other movements (8,607) (5,745) Closing balance 188,640 158,856 Determined individually 129,745 115,095 Determined collectively 58,895 43,761
The breakdown of "Impairment losses - Loans and advances" recognized in the consolidated income statement at 31 December 2011 and 2010 is as follows:
Thousands of euro 2011 2010
Net impairment in the period 42,488 24,541 Suspense items recovered (364) (482) Assets directly derecognized 1,753 347 Other - 528
43,877 24,934
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The impairment losses recognized at 31 December 2011 and 2010 cover the minimum provisions required by the Bank of Spain, taking account of the status and circumstances of the transactions and borrowers. Loans and advances. Debt securities The breakdown by region and counterparty of this line of the consolidated balance sheet was as follows: Thousands of euro 2011 2010 By region Spain 24,402 31,493 European Union 27,750 36,999 United States of America 5,433 6,738 Other countries 1,345 6,180 Total 58,930 81,410 By counterparty Spanish public sector 145 145 Non-resident government bodies 1,382 1,347 Credit institutions 27,844 40,525 Other resident sectors 9,251 13,433 Other non-resident sectors 20,552 26,691 Total 59,174 82,141 Valuation adjustments for impairment of (244) (731) financial assets Total 58,930 81,410
The entire balance recognized in this line at 31 December 2011 and 2010 corresponds to securities transferred at the year-end from "Available-for-sale financial assets" to "Loans and advances" to bring their classification into line with the management objective, as established in IAS 39 and because no active market for those securities is considered to exist, as described in Note 2.d) VI. The carrying amount of this portfolio is the same as the fair value of the securities outstanding at 31 December 2011 and 2010 on the date of transfer. Unrealized losses recognized in consolidated equity at 31 December 2011 totalled EUR 2,742 thousand, down from EUR 5,027 thousand at 31 December 2010. The average annual interest rate for "Debt securities" included in "Loans and advances" in 2011 was 1.74% (1.24% in 2010), while interest accrued in 2011 on these financial assets came to EUR 1,292 thousand (EUR 1,185 thousand in 2010). A breakdown by residual term to maturity of debt securities recognized in this line at 31 December 2011 and 2010 is given in Note 6. Details of the valuation adjustments for asset impairment recognized by the Group at the close of 2011 and 2010 for "Debt securities" included in "Loans and advances" are as follows: Index Annual Report 2011
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Thousands of euro 2011 2010
Opening balance 731 1.122
Impairment losses charged against income for the year (487) (232) Determined individually (435) - Determined collectively (52) (232) Application of balances - (159) Closing balance 244 731 Determined individually 63 498 Determined collectively 181 233
Impaired and overdue assets Details of financial assets classified as "Loans and advances" and considered impaired due to credit risk at 31 December 2011 and 2010 and of those assets that, although not considered impaired, had a past-due balance at that date, broken down by time elapsed since the oldest-dated amount outstanding in each transaction fell due, are given in the following table: • Impaired assets Thousands of euro 2011 2010 Transactions originally considered as “without perceivable risk” 5,524 3,152 Transactions subject to standard treatment 86,407 74,769 Less than 6 months 12,194 10,285 6 to 9 months 4,828 6,493 9 to 12 months 9,719 8,592 More than 12 months 59,666 49,399 Loans secured by property 152,434 134,561 Finished homes that are the borrower’s usual place of residence 31,435 28,862 Less than 6 months 7,760 4,873 6 to 9 months 3,380 3,576 9 to 12 months 2,377 2,446 More than 12 months 17,918 17,967 Working farms and finished offices, workshops and multi-purpose 21,313 18,055 industrial buildings Less than 6 months 4,178 2,494 6 to 9 months 2,149 1,750 9 to 12 months 1,857 1,285 More than 12 months 13,129 12,526 Finished homes (other) 18,668 12,884 Less than 6 months 7,168 10,085 6 to 9 months 431 678 9 to 12 months 3,768 761 More than 12 months 7,301 1,360 Plots of land, sites and other real estate assets 81,018 74,760 Less than 6 months 39,574 40,579 6 to 9 months 4,327 2,853 9 to 12 months 3,557 2,625 More than 12 months 33,560 28,703 Partially secured by collateral 8,828 8,960 Total 253,193 221,442
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Accumulated finance income from impaired financial assets not recognized in income at 31 December 2011 and 2010 amounted to EUR 6,996 thousand and EUR 5,395 thousand, respectively.
• Assets with overdue balances but not considered impaired
Thousands of euro 2011 2010 Less than 1 month 7,509 5,436 1 to 2 months 2,349 3,654 2 to 3 months 3,462 3,821 13,320 12,911
The Group renegotiated the terms and conditions of certain loans and advances in 2011 and 2010, obtaining additional guarantees to those already existing that provide greater security as to their repayment. The balance of the loans renegotiated in 2011 and 2010 that, had the renegotiation not taken place would have been classified as impaired (doubtful) assets, was EUR 39,430 thousand and EUR 37,175 thousand, respectively, and corresponds to transactions classified as "Loans and advances". Details of the movement in impaired financial assets derecognized because the likelihood of their recovery was considered remote but in relation to which the Group has not discontinued actions to recover the amounts receivable are as follows: Thousands of euro 2011 2010 Opening balance 19,868 15,429 Additions 7,424 9,907 Charged to valuation adjustments for impairment of 4,667 8,108 financial assets Charged directly to income 1,753 347 Receivables past-due but not collected 1,004 1,452 Other items - - Recoveries (364) (482) Collected in cash (364) (482) Definitively derecognized (1,911) (4,986) Due to write-offs - (3,866) For other reasons (1,911) (1,120) Closing balance 25,017 19,868
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12. HELD-TO-MATURITY INVESTMENTS The breakdown of this line of the consolidated statement of financial position by region and counterparty is as follows:
Thousands of euro 2011 2010 By region Spain 38,326 31,416 European Union - 2,050 United States of America - - Other countries - - Total 38,326 33,466 Valuation adjustments for impairment of (99) (99) financial assets Total 38,227 33,367 By counterparty Credit institutions - 2,050 Resident government bodies 1,614 1,627 Non-resident government bodies - - Other resident sectors 36,712 29,789 Total 38,326 33,466 Valuation adjustments for impairment of (99) (99) financial assets Total 38,227 33,367
The average annual interest rate on the financial securities included in the "Held- to-maturity investments" portfolio during 2011 stood at 4.70% (5.58% in 2010) and accrued interest in 2011 on the financial assets included in this portfolio came to EUR 1,646 thousand (EUR 1,837 thousand in 2010). None of the securities classified in this portfolio had been sold, transferred or assigned at 31 December 2011 and 2010.
A breakdown by residual term to maturity of the items making up the balance of this line of the consolidated statement of financial position is given in Note 6.
Where measurable, the fair values of "Held-to-maturity investments" at 31 December 2011 and 2010 are reported in Note 6.d. Index Annual Report 2011
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Details of the valuation adjustments for impairment of "Held-to-maturity investments" recognized by the Group at the close of 2011 and 2010 are as follows: Thousands of euro 2011 2010
Opening balance 99 156
Impairment losses charged against income for the year - (57) Determined individually - - Determined collectively - (57)
Closing balance 99 99
13. HEDGING DERIVATIVES (ASSETS AND LIABILITIES) Derivatives designated as hedging instruments are recognized at fair value, as detailed in Note 2.e.IV.
The breakdown of hedging derivatives by type of hedge at 31 December 2011 and 2010 is as follows:
Thousands of euro Assets Liabilities 2011 2010 2011 2010 Micro-hedging Fair value hedges 942 1,529 9,657 10,879 Cash flow hedges - - - -
942 1,529 9,657 10,879
The breakdown of the notional and fair values of the financial derivatives recognised as "Trading derivatives" by type of market, type of product, counterparty, residual term to maturity and type of risk is as follows: Index Annual Report 2011
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Thousands of euro Notional value Fair value Fair value Memorandum accounts Assets Liabilities 2011 2010 2011 2010 2011 2010 By type of market Bilateral (OTC) markets 284,988 307,013 942 1,529 9,657 10,879 TOTAL 284,988 307,013 942 1,529 9,657 10,879
By type of product Swaps 284,988 307,013 942 1,529 9,657 10,879 TOTAL 284,988 307,013 942 1,529 9,657 10,879
By counterparty Resident credit institutions 284,988 297,727 942 1,073 9,657 10,879 Other resident sectors - 9,286 - 456 - - TOTAL 284,988 307,013 942 1,529 9,657 10,879
By residual term to maturity Less than 1 year 85,314 78,160 942 1,529 744 145 1 to 5 years 141,699 178,233 - - 4,061 7,495 More than 5 years 57,975 50,620 - - 4,852 3,239 TOTAL 284,988 307,013 942 1,529 9,657 10,879
By type of risk Interest rate risk 284,988 297,727 942 1,073 9,657 10,879 Equity risk - 9,286 - 456 - - TOTAL 284,988 307,013 942 1,529 9,657 10,879
The following financial swaps have been contracted (listed with their hedged items:
• Interest rate swap, to hedge "Debt securities" and customer deposits bearing interest at a fixed rate. • Equity swap, to hedge customer deposits bearing interest at a rate indexed to the price of securities or market indices. • Equity swap, to hedge equity instruments classified as "Available-for-sale financial assets".
At 31 December 2011, the Group recognized net profit of EUR 1,003 thousand as a result of changes in the fair value of hedging transactions (compared with a net profit of EUR 788 thousand in 2010). With regard to the hedged items, in 2011 a net loss of EUR 596 thousand attributable to the hedged risk was recognized (versus a net loss of EUR 1,061 thousand in 2010). (Note 32).
The notional and/or contractual value of the formal derivative contracts does not represent the real risk assumed by the Group as the net position is obtained by offsetting and/or grouping together these financial instruments. Index Annual Report 2011
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14. NON-CURRENT ASSETS HELD FOR SALE
The breakdown of this line of the consolidated statement of financial position at 31 December 2011 and 2010 is as follows:
2011 2010
Property and equipment 30,630 16,639 Investment property 305 24 Foreclosed property and equipment 31,337 17,440 Valuation adjustments for impairment of financial assets (1,012) (825)
30,630 16,639
Movements in "Foreclosed property and equipment" included in "Non-current assets held for sale" in 2011 and 2010 were as follows:
2011 2010
Opening balance 17,440 10,142 Additions 20,437 15,347 Retirements (6,540) (8,049) Transfers - -
Closing balance 31,337 17,440
Movement in "Valuation adjustments for impairment of financial assets" included in "Non-current assets held for sale" in 2011 and 2010 was as follows:
2011 2010
Opening balance 825 - Net additions charged against income 546 942 Reversals or sales (359) (117) Other -
Closing balance 1,012 825
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15. EQUITY INVESTMENTS The detail of the Bank's equity investments at 31 December 2011 and 2010, by company, is as follows:
Thousands of euro % ownership Acquisition cost Net carrying amount interest 2011 2010 2011 2010 2011 2010 Associates Bodegas Príncipe de Viana, S.L. 50.00% 50.00% 11,015 11,015 12,018 11,954 Omegageo, S.L. 50.00% 50.00% 1,092 1,092 3,193 2,937 Harantico, S.L. 50.00% 50.00% 3,002 3,002 4,014 4,086 Harinera del Mar Siglo XXI, S.L. 50.00% 50.00% 9,500 6,000 7,097 5,107 Triticale, S.A. - 50.00% - 103 - 100 Reivalsa Gestión, S.L 50.00% 50.00% 50 50 237 120 Renovables de la Ribera, S.L. 50.00% - 150 - 146 - Cegima Gestión Hipotecaria, S.L. 50.00% - 15 - 15 - Bosqalia, S.L. 48.40% 48.40% 1,452 1,452 1,310 1,354 Cogremasa Activos Inmobiliarios, S.L. 45.00% 45.00% 8,248 8,248 8,458 8,478 Servicios Empresariales 33.33% 33.33% 30 30 97 75 Agroindustriales, S.A. Albedo Solar 1, S.L. 33.33% 33.33% 1 1 1 1 Helian Energy 1, S.L. 33.33% 33.33% 1 1 1 1 Rioja Vega, S.A. 25.07% 25.07% 4,491 4,491 2,616 2,666 Eólica La Calera, S.L. 25.00% 25.00% 2 2 - 2 Zagin Group, S.L. 25.00% 25.00% 2,031 2,031 1,790 1,835 Investi Navarra In Est, S.L. 25.00% 25.00% 5,000 5,000 1,579 2,500 Rural de Energías Aragonesas, S.A. 25.00% 25.00% 150 150 109 159 Chicaire de Cantabria, S.L. 25.00% 25.00% 37 37 35 36 Sigurd Technologie, S.L.Sigurd - 24.87% - 194 - 17 Technologie, S.L. Harivenasa, S.L. 24.90% - 25 - 25 - Compañía Eólica de cras Altas, S.A. 23.75% 23.75% 3,184 3,184 8,651 7,994 Haribericas XXI, S.L. 20.00% 20.00% 876 876 674 857 Zeleny, Información y Mercado, S.L. 20.00% 20.00% 300 300 24 19 AN Avícola Mélida, S.A. - 20.00% - 2,270 - 2,567 Iparlat, S.A. 19.72% 19.72% 4,173 4,173 6,498 7,084
Total 54,825 53,910 58,588 59,949
The Group's interest in AN Avícola Mélida, S.A. was reclassified in 2011 from "Investments in associates" to "Available-for-sale financial assets - Equity instruments" after the controlling shareholder signed a MOU to bring in a new equity partner, as a result of which the Group's percentage ownership interest will fall to less than 20% and it will cease to exercise significant influence over the company (Note 10). The carrying amount of investees at 31 de December de 2011 and 2010 includes goodwill of EUR 548 thousand in both years. Index Annual Report 2011
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The activities, registered offices and key performance indicators of companies accounted for by the equity method at 31 December 2011 were as follows:
Thousands of euro Company Head office Line of business Total Equity Earnings assets Renovables de la Ribera, S.L. Pamplona Construction and operation of 453 292 (1) wind farms Bodegas Príncipe de Viana, S.L. Pamplona Production and sale of wine 45,887 28,366 23 Omegageo, S.L. Pamplona Civil engineering and building 8,196 5,850 30 projects Harantico, S.L. Pontevedra Manufacture and sale of flour 21,811 8,027 (86) Harinera del Mar Siglo XXI, S.L. Valencia Manufacture and sale of flour 64,931 14,194 (1,820) Reivalsa Gestión, S.L Vitoria (Alava) Provision of administrative 6,825 475 257 services to public sector bodies Bosqalia, S.L. Pamplona Forestry 6,344 2,707 (91) Cogremasa Activos Inmobiliarios, S.L. Pamplona Development and 47,227 23,017 350 management of rent- controlled housing Servicios Empresariales Agroindustriales, Pamplona Management of cooperative 627 292 - S.A. services Albedo Solar 1, S.L. Pamplona Generation and sale of solar energy 3 3 - Helian Energy 1, S.L. Pamplona Generation and sale of solar energy 3 3 - Rioja Vega, S.A. Viana Production and sale of wine 14,971 10,535 44 (Navarra) Eólica La Calera, S.L. Soria Construction and operation of wind farms 4 (2) - Zagin Group, S.L. Ainzoain Real estate development 13,107 5,989 (183) (Navarra) Investi Navarra In Est, S.L. Pamplona Real estate development 11,684 6,822 (13,173) Rural de Energías Aragonesas, S.A. Zaragoza Generation and sale of 1,024 435 (135) renewable energy Chicaire de Cantabria, S.L. Santander Generation and sale of 142 141 (2) (Cantabria) renewable energy Harantico, S.L. Noain Production and sale of wine 99 99 (1) (Navarre) Compañía Eólica de Tierras Altas, S.A. Soria Construction and operation of 62,489 36,427 8,403 wind farms Haribericas XXI, S.L. Pamplona Manufacture and sale of flour 49,742 8,212 (964) Zeleny, Información y Mercado, S.L. Pamplona Intermediation in cereal 178 146 - marketing Cegima Gestión Hipotecaria, S.L. San Sebastián Document preparation and 8 8 (7) de los Reyes processing (Madrid) Iparlat, S.A. Urnieta Production of dairy products 173,998 42,290 (2,041) (Guipúzcoa)
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The activities, registered offices and key performance indicators of companies accounted for by the equity method at 31 December 2010 were as follows:
Thousands of euro Company Head office Line of business Total Equity Earnings assets Bodegas Príncipe de Viana, S.L. Pamplona Production and sale of wine 47,422 28,362 101 Omegageo, S.L. Pamplona Civil engineering and building 8,459 5,497 (47) projects Harantico, S.L. Pontevedra Manufacture and sale of flour 12,752 7,982 971 Harinera del Mar Siglo XXI, S.L. Valencia Manufacture and sale of flour 57,475 11,779 23 Triticale, S.L. Pamplona Energy development 195 187 (3) Reivalsa Gestión, S.L Vitoria (Alava) Provision of administrative 3,588 218 119 services to public sector bodies Bosqalia, S.L. Pamplona Forestry 6,639 2,945 (55) Cogremasa Activos Inmobiliarios, S.L. Pamplona Development and management 40,607 23,129 327 of rent-controlled housing Servicios Empresariales Pamplona Management of cooperative 627 292 26 Agroindustriales, S.A. services Albedo Solar 1, S.L. Pamplona Generation and sale of solar energy 3 3 - Helian Energy 1, S.L. Pamplona Generation and sale of solar energy 3 3 - Rioja Vega, S.A. Viana Production and sale of wine 15,247 10,635 (560) (Navarra) Eólica La Calera, S.L. Soria Construction and operation of wind farms 4 (2) (10) Zagin Group, S.L. Ainzoain Real estate development 14,056 6,142 (133) (Navarra) Investi Navarra In Est, S.L. Pamplona Real estate development 24,456 19,995 3 Rural de Energías Aragonesas, S.A. Zaragoza Generation and sale of 1,028 570 (14) renewable energy Chicaire de Cantabria, S.L. Santander Generation and sale of 143 143 (4) (Cantabria) renewable energy Sigurd Technologie, S.L.Sigurd San Pedro Production and sale of solar Technologie, S.L. Manrique power and PV equipment (Soria) 2,315 68 (383) Compañía Eólica de Tierras Altas, Soria Construction and operation of 67,665 33,657 7,222 S.A. wind farms Haribericas XXI, S.L. Pamplona Manufacture and sale of flour 20,110 4,281 (33) Zeleny, Información y Mercado, S.L. Pamplona Intermediation in cereal 178 121 24 marketing AN Avícola Mélida, S.A. Mélida Manufacturing and marketing of 46,170 16,674 352 (Navarra) chicken poultry Iparlat, S.A. Urnieta Production of dairy products 162,094 46,447 2,655 (Guipúzcoa)
The total assets, equity and earnings figures shown in the above table are those of the individual companies, prepared in accordance with the accounting principles applied by each one, before standardization and harmonization adjustments for the purposes of consolidation into the financial statements of Caja Rural de Navarra and subsidiaries. Index Annual Report 2011
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All balances recognized under "Equity investments" at the close of 2011 and 2010 corresponded to shares that are not quoted on official markets.
Movements in this line of the consolidated statement of financial position in 2011 and 2010 were as follows: Thousands of euro
Balance at 31 December 2009 57,199
Additions 1,104 Retirements - Transfers 1,646
Balance at 31 December 2010 59,949
Additions 3,500 Retirements (2,444) Transfers (2,417)
Balance at 31 December 2011 58,588
In accordance with the policy set out in 2.g) at 31 December 2011 and 2010 no impairment losses were recorded against investments in these companies. Index Annual Report 2011
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16. PROPERTY AND EQUIPMENT Movement in this line of the consolidated statement of financial position in 2011 and 2010 is as follows:
Thousands of euro
Property and equipment Assigned to Investment
social property For own use Total projects Cost - Balance at 31 December 2009 255,171 509 5,437 261,117 Additions 12,831 5 - 12,836 Retirements and writedowns (5,534) (8) - (5,542) Transfers (931) - - (931) Balance at 31 December 2010 261,537 506 5,437 267,480 Additions 10,552 16 661 11,229 Retirements and writedowns (1,936) (5) - (1,941) Transfers (161) - - (161) Balance at 31 December 2010 269,992 517 6,098 276,607
Accumulated depreciation- Balance at 31 December 2009 99,408 335 554 100,297 Provisions 12,273 3 78 12,354 Retirements and writedowns (2,171) (8) - (2,179) Transfers (225) - - (225) Balance at 31 December 2010 109,285 330 632 110,247 Provisions 11,472 5 98 11,575 Retirements and writedowns (882) (5) - (887) Transfers - - - - Balance at 31 December 2010 119,875 330 730 120,935
Property and equipment, net - Balance at 31 December 2010 152,252 176 4,805 157,233 Balance at 31 December 2011 150,117 187 5,368 155,672
At 31 December 2011 and 2010 property and equipment acquired under finance leases totalled EUR 873 thousand and EUR 1,056 thousand, respectively. At 31 December 2011 and 2010 the Group had no property and equipment that was temporarily out of service or had been withdrawn from active use. At 31 December 2011 and 2010 the Group had no significant outright sale undertakings relating to property and equipment. Fully depreciated property and equipment still in use within the Group at 31 December 2011 and 2010 was worth a total of EUR 66.278 thousand and EUR 53,571 thousand, respectively. Index Annual Report 2011
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In accordance with Bank of Spain Circular 4/2004, the Group re-measured certain unrestricted items included in "Buildings for own use" on 1 January 2004 (Note 2.i). The Group carries out regular appraisals of its main buildings to identify potential impairment. Based on the latest available appraisals, the Directors consider that the fair values of the Caja's property and equipment do not differ significantly from their carrying amounts.
17. OTHER ASSETS/LIABILITIES The breakdown of these asset and liability items in the accompanying consolidated statement of financial position at the close of 2011 and 2010 is as follows: Thousands of euro 2011 2010 Assets:
Inventories relating to non-financial activities 49,923 62,836 Transactions in transit 19,120 26,561 Accruals 2,310 1,723 Other items 3,565 3,642
74,918 94,762 Liabilities:
Transactions in transit 6,880 919 Accruals 16,576 17,044 Other items 28,212 22,411
51,668 40,374
The Group's most significant inventories correspond to land received from Group company Promoción Estable del Norte, S.A. Index Annual Report 2011
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18. FINANCIAL LIABILITIES AT AMORTISED COST The breakdown of this balance sheet line at 31 December 2011 and 2010 is as follows: Thousands of euro 2011 2010
Deposits from credit institutions 1,784,356 1,080,962 Customer deposits 5,221,377 5,145,472 Debt securities 71,735 293,785 Other financial liabilities 61,608 58,675
Total 7,139,076 6,578,894
Deposits from credit institutions The breakdown of this consolidated statement of financial position item by type of deposit and currency of denomination is as follows: Thousands of euro 2011 2010 Type of deposit Term deposits 1,623,657 1,067,371 Repurchase agreements (Note 10) 134,998 - Other accounts 11,137 - Valuation adjustments 14,564 13,591 Total 1,784,356 1,080,962 Currency Euro 1,784,356 1,080,962 Total 1,784,356 1,080,962
At 31 December, 2011 "Term deposits" included three deposits from Banco Cooperativo Español, S.A. totalling EUR 665,000 thousand in cash from European Central Bank auctions. These deposits mature between 2012 and 2015 and pay 1.01% interest. Also, at 31 December 2010, this line included a single deposit of EUR 100,000 thousand paying 1.01% which matured on 31 March 2011. A breakdown of this item by residual term to maturity is given in Note 6. "Term deposits" includes two loans made by Banco Cooperativo Español, S.A. ("BCE") for covered bond issues taken up by savings banks belonging to Caja Rural Group. These were underwritten by the Spanish government in accordance with Ministry for the Economy and Finance Order EHA/3364/2008, of 21 November, implementing Article 1 of Royal Decree 7/2008, of 13 October, Index Annual Report 2011
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on urgent economic measures related to the plan for coordinated action among euro-zone member states. As allowed by the Ministerial Order, the Bank, along with other savings banks that had shares in BCE and BCE itself, decided to use one of the options available under the government guarantee provisions, by forming a Grouping of Credit Institutions to issue the fixed income securities which were then backed by the government. The Bank agreed that the BCE should make two loans for the same amounts and on the same financial terms as the corresponding fixed-income issues. It was also agreed that the Bank would meet the costs of issue and the government guarantee in proportion to its share under the terms of the Ministerial Order. The size and financial terms of the loans linked to these issues are as follows:
Issue date 02/04/2009 22/01/2010 Maturity 3 years 5 years Redemption date 02/04/2012 22/01/2015 Nominal amount (thousands of euro) 153,900 215,000 Interest rate 4.273% 4.242%
Of the cash raised by these financing operations EUR 223,688 thousand remains invested in securities from the covered bond issue itself at 31 December 2011 (EUR 175,927 thousand at 31 December 2010), recognized under "Available-for-sale financial assets". The Bank also jointly guarantees the BCE, for as long as the government- backed issue remains outstanding, against any losses the BCE may suffer on interbank loans to rural savings banks belonging to the Grouping or on the issue of state-backed fixed-income securities. These sums are taken on by the Bank in the same proportion as the guaranteed issues up to a maximum amount of the guarantee recorded in the memorandum accounts of EUR 368,900 thousand at 31 December 2011 (EUR 368,900 thousand at 31 December 2010). (Note 25). "Term deposits" also includes EUR 488,059 thousand corresponding to funds from the Official Credit Institute relating to brokerage loans (EUR 496,491 thousand at 31 December 2010). The average interest rate of these securities was 2.47% in 2011 (2.56% in 2010) and the accrued interest in 2011 on the financial liabilities included in this portfolio came to EUR 32,845 thousand (EUR 24,668 thousand in 2010). (Note 28). Index Annual Report 2011
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Customer deposits The breakdown of customer deposits by type of deposit, sector of activity, type of interest rate and currency of denomination is as follows: Thousands of euro 2011 2010 Type of deposit Demand deposits 1,735,674 1,658,056 Term deposits 3,471,971 3,453,578 Reverse repurchase agreements - 28,738 Valuation adjustments 13,732 5,100 Total 5,221,377 5,145,472 Sector of activity Spanish public sector 148,787 203,157 Other resident sectors 5,052,824 4,922,758 Non-resident sectors 19,766 19,557 Total 5,221,377 5,145,472 Type of interest rate Floating 659,021 739,603 Fixed 4,562,356 4,405,869 Total 5,221,377 5,145,472 Currency Euro 5,207,479 5,133,896 US dollar 11,694 9,896 Other currencies 2,204 1,680 Total 5,221,377 5,145,472
The average interest rate of these securities was 1.87% in 2011 (1.43% in 2010) and the accrued interest in 2011 on the financial liabilities included in this portfolio came to EUR 97,201 thousand (EUR 73,557 thousand in 2010). (Note 28). Pursuant to prevailing legislation, term deposits include the liability corresponding to the securitization transactions mentioned in Note 11, amounting to EUR 123,513 thousand at 31 December 2011 (EUR 158,687 thousand at 31 December 2010). In 2011 and 2010, the Bank made market buybacks of bonds from the various securitization issues in which the Group had participated as originating entity for a total nominal amount of EUR 17,824 thousand and EUR 5,466 thousand, respectively, (the amount at which they were recognized), at a cost of acquisition of EUR 15,041 thousand and EUR 4,747 thousand, respectively. The differences between the cost of acquisition and carrying amount were recognized in the consolidated income statement under "Financial instruments not measured at fair value through profit or loss" in the "Gains (losses) on financial assets and liabilities" line. A breakdown of this item by residual term to maturity is given in Note 6. Index Annual Report 2011
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Debt securities In this line of the statement of financial position, the Group recognizes the value of bonds and other bearer debt securities and promissory notes that are not subordinated liabilities. This line also includes the portion of compound financial instruments that is treated as a financial liability. The breakdown of this item in the consolidated statement of financial position, by type of financial liability, is as follows:
Thousands of euro 2011 2010
Promissory notes and other bills 71,452 36,240 Bonds and debentures - 257,150 outstanding Valuation adjustments 283 395
Total 71,735 293,785
"Promissory notes and other bills" recognizes the amount corresponding to issues of promissory notes for which the issue prospectus has been filed with the Official Registry of the Spanish National Securities Market Commission (CNMV). The balance outstanding at 31 December 2011 corresponds to the ninth issue of Caja Rural de Navarra promissory notes, registered with the CNMV on 3 February 2011, while the balance outstanding at 31 December 2010 corresponded to the eighth issue of Caja Rural de Navarra promissory notes, registered with the CNMV on 26 January 2010. The maximum balances outstanding on the two issues were EUR 200,000 thousand. On 31 January 2012, Caja Rural de Navarra registered its tenth issue of promissory notes with the CNMV, fixing the maximum issue amount at EUR 200,000 thousand, extendible to EUR 400,000 thousand. Promissory notes are issued at a discount, their cash value being determined at the time of issuance of each note based on the interest rate and maturity date agreed in the terms of issue. The nominal unit amount is EUR 50,000 and the contract term can range from four to three hundred and sixty-four days. The Group launched its first issue of treasury bonds in 2006, for a total amount of EUR 300,000 thousand. The bonds bear interest at a floating rate indexed to the 3-month Euribor, revisable and payable quarterly, plus a spread of 20 basis points that remains constant over the entire term of the issue, and mature in 2011. The issue is guaranteed by the Bank's universal asset liability. Index Annual Report 2011
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In 2011 and 2010, the Bank made market buybacks of bonds from the first issue for total nominal amounts of EUR 25,850 thousand and EUR 5,500 thousand, respectively (the amount at which they were recognized) at a cost of acquisition of EUR 25,609 thousand and EUR 5,417 thousand, respectively. The differences between the cost of acquisition and carrying amount were recognized in the consolidated income statement under "Financial instruments not measured at fair value through profit or loss" in the "Gains (losses) on financial assets and liabilities" line. Both the promissory notes and the bonds have been admitted for trading on the AIAF fixed-income market. The average interest rate of these securities was 1.64% in 2011 (1.05% in 2010) and the accrued interest in 2011 on the financial liabilities included in this portfolio came to EUR 4,137 thousand (EUR 3,018 thousand in 2010). (Note 28). Information required pursuant to Act 2/1981, of 25 March, on the regulation of the mortgage market, and Royal Decree 716/2009, of 24 April, implementing certain aspects of the aforesaid Act. The Group has issued no mortgage bonds (cédulas hipotecarias). A breakdown of the nominal values of all the Group's mortgage loans and advances, and all loans eligible under applicable legislation for inclusion in the calculation of the mortgage bond issuance ceiling is given below:
Thousands of euro 2011 2010
Nominal value of the portfolio of mortgage loans and advances pending settlement (*) 3,176,006 2,863,678
Nominal value of mortgage loans and advances pending settlement that are eligible under Article 3 of Royal Decree 716/2009, of 24 April, for inclusion in the calculation of the mortgage bond issuance ceiling 1,985,980 1,710,379
(*) This figure excludes the outstanding balances of loans and advances assigned to mortgage securitization transactions. Index Annual Report 2011
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Other financial liabilities All financial liabilities recognized in this line are classified as "Financial liabilities at amortized cost" and measured accordingly. The balance includes any payment obligations having the substance of a financial liability that are not included in other items. The breakdown of other financial liabilities by type of instrument is as follows:
Thousands of euro 2011 2010 Payment obligations 3,071 1,354 Tax revenue collection accounts 14,171 14,025 Payable for purchases and non-financial services 28,052 27,348 Other items 16,314 15,948
Total 61,608 58,675
19. PROVISIONS The balance recognized in this line of the consolidated statement of financial position at the close of 2010 and 2011 and movements in those years were as follows: Thousands of euro Provisions for contingent exposures and Other provisions commitments Balance at 31 December 2009 8,572 2 Additions charged against income 2,215 89 Reversals credited to income (2,323) - Net addition (Note 35) (108) 89 Other movements (350) (91) Balance at 31 December 2010 8,114 - Additions charged against income 1,939 - Reversals credited to income (2,501) - Net addition (Note 35) (562) - Other movements (25) - Balance at 31 December 2011 7,527 -
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20. VALUATION ADJUSTMENTS Available-for-sale financial assets This heading reflects the net effect of changes in the fair value of assets classified as available-for-sale that, pursuant to Note 10 above, would normally be classified as part of the Group's equity. These changes are recognized in the income statement when the assets giving rise to them are sold. Changes in the balance of the "Valuation adjustments" line under equity reflecting transactions involving securities classified as "Available-for-sale financial assets" and "Loans and advances - debt securities" and changes in the fair value of these assets were as follows:
Thousands of euro Debt securities Equity instruments Total 2011 2010 2011 2010 2011 2010
Opening balance (11,383) (9,257) 8,916 8,318 (2,467) (939)
Measurement gains (losses) 3,392 (2,766) 6,118 118 9,510 (2,648) Amounts transferred to the consolidated income statement 86 (68) (4,506) 736 (4,420) 668 Income tax (869) 708 (484) (256) (1,353) 452
Closing balance (8,774) (11,383) 10,044 8,916 1,270 (2,467)
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21. SHARE CAPITAL As described in Note 2.d.I), members' contributions to cooperative entities are classified as capital only when the entity has an unconditional right to refuse redemption or where redemption is prohibited by law or in the articles of association.
Mandatory and voluntary capital contributions made to the Bank by members in 2011 and 2010, and changes in capital occurring in those years, are shown in the table below: Thousands of euro
Mandatory Voluntary Total contributions contributions Balance at 31 December 2009 9,752 77,609 87,361 Subscriptions 799 24,902 25,701 Redemptions - (1,425) (1,425) Balance at 31 December 2010 10,551 101,086 111,637 Subscriptions 589 17,931 18,520 Redemptions (6) (5,298) (5,304) Balance at 31 December 2011 11,134 113,719 124,853
The Bank classifies contributions received as mandatory and voluntary, in accordance with the provisions of its articles of association. Pursuant to prevailing legislation and the articles of association, the minimum mandatory contribution for individuals is EUR 60.11, while the minimum contribution for legal entities is EUR 120.22, except in the case of cooperative entities, in which case the minimum contribution is dependent on the number of members the cooperative entity has. Mandatory contributions at 31 December 2011 and 2010 were represented by 185,231 and 175,532 fully paid-up registered shares, respectively, each with a nominal value of EUR 60.11. Voluntary contributions at 31 December 2011 and 2010 were represented by 1,891,848 and 1,681,675 fully paid-up registered shares from various issues, respectively, each with a nominal value of EUR 60.11. The Bank satisfies its minimum capital requirement of EUR 4,808,096.83, established pursuant to the provisions of the enacting regulations of Act 13/1989, of 26 May, on Cooperative Credit Institutions. The remuneration that may be paid on both types of capital contributions is limited to no more than six percentage points above the legal interest prevailing in the reporting period. The rate of remuneration for mandatory contributions is determined annually at the General Meeting for the prior year. For voluntary contributions, at each General Meeting members authorise the Governing Board Index Annual Report 2011
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to set the rate of remuneration and the payment schedule. In 2011 and 2010 remuneration paid to cooperative members in respect of contributions made came to EUR 2,021 thousand and EUR 1,598 thousand, respectively. In accordance with prevailing regulations, the sum of mandatory and voluntary contributions must not exceed 2.5% of share capital in the case of individuals and 20% in the case of legal entities. Legal entities that are not cooperative entities cannot hold more than 50% of capital. None of the aforementioned limits had been exceeded at 31 December 2011 and 2010.
22. RESERVES Definition The balance recognized in the consolidated statement of financial position under "Shareholder's equity - Reserves" comprises the net amount of Retained earnings (profit or loss) recognized in income in prior years and appropriated to equity, as well as the reserves of companies accounted for by the equity method.
Breakdown The detail of this item and movement in 2011 and 2010 are as follows:
Thousands of euro
Reserves of
Mandatory companies
Reserve Other accounted for Total Revaluation Fund reserves using the equity reserves method
Balance at 31 December 2009 15,692 476,081 17,449 7,308 516,530 Appropriation of prior year’s profit - 47,221 - - 47,221 Depreciation and amortization of (371) - 371 - - revalued items Disposal of revalued items (402) - 402 - - Other movements - - 4,636 (883) 3,753 Balance at 31 December 2010 14,919 523,302 22,858 6,425 567,504 Appropriation of prior year’s profit - 30,470 - - 30,470 Depreciation and amortization of (359) - 359 - - revalued items Disposal of revalued items (37) - 37 - - Other movements - - 4,157 (1,055) 3,102 Balance at 31 December 2011 14,523 553,772 27,411 5,370 601,076
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Revaluation reserves Revaluation reserves include the surpluses resulting from the revaluation carried out by the Group at 1 January 2004, pursuant to the First Transitional Provision of Bank of Spain Circular 4/2004, on certain properties included in property and equipment for own use. In accordance with the aforesaid provision, amounts recognized in "Revaluation reserves" will be reclassified to "Other reserves" as the assets are derecognized due to depreciation, impairment or disposal in the proportion corresponding to the revaluation.
Mandatory Reserve Fund The aim of the Mandatory Reserve Fund is to strengthen and guarantee the Bank's solvency. In accordance with Act 13/1989, of 26 May 1989, on cooperative credit institutions, the Mandatory Reserve Fund is established and maintained by allocating at least 50% of earnings for each year, net of prior years' accumulated losses, if any. Any gains generated on the disposal of property and equipment or obtained from sources unrelated to the Bank's specific objectives must also be assigned to this Fund, unless the Group recognizes an overall loss for the year. The Bank's articles of association establish that 90% of profit for the year must be allocated to the Mandatory Reserve Fund. Index Annual Report 2011
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Other reserves and reserves of companies accounted for using the equity method The breakdown by company of "Other reserves" and "Reserves of companies accounted for using the equity method" at 31 December 2011 and 2010 is as follows: Thousands of euro
Reserves of companies Other reserves accounted for using the equity method 2011 2010 2011 2010 Parent company, after consolidation 28,832 23,056 - - adjustments Informes y Gestiones Navarra, S.A. 228 80 - - Harivasa 2000, S.A. 7,600 6,659 - - Harinera de Tardienta, S.A. (851) (1,359) - - Facilpark, S.A. 12 12 - - Promoción Estable del Norte, S.A. (9,722) (6,881) - - Industrial Tonelera Navarra, S.A. 778 683 - - Seresgerna, S.A. 2,077 1,880 - - Residencia Torre de Monreal, S.L. (392) (160) - - Distribution subgroup (1,363) (1,007) - - Preventia Sport, S.L. 124 (105) - - The Spanish Food & Drinks Company 88 - - - GMBH Bodegas Príncipe de Viana, S.L. - - 980 1,063 Harantico, S.L. - - 1,055 823 Bosqalia, S.L. - - (98) (83) Renovables de la Ribera, S.L. - - (3) - Triticale, S.A. - - - (3) Harinera del Mar Siglo XXI, S.L. - - (1,493) (904) Omegageo, S.L. - - 2,007 1,878 Servicios Empresariales Agroindustriales, - - 67 45 S.A. Rioja Vega, S.A. - - (734) (599) Cogremasa Activos Inmobiliarios, S.A. - - 52 38 Reivalsa Gestión, S.L. - - 59 15 Zagin Group, S.L. - - (195) (162) Investi Navarra In Est, S.L. - - (2,500) (1,350) Rural de Energías Aragonesas, S.A. - - (7) 13 Eólica La Calera, S.L. - - (3) - Compañía Eólica de Tierras Altas, S.A. - - 3,472 3,094 AN Avícola Mélida, S.L. - - - 227 Haribericas XXI, S.L. - - (20) (13) Zeleny, Información y Mercado, S.L. - - 15 10 Iparlat, S.A. - - 2,718 2,417 Chicaire de Cantabria, S.L. - - (2) (1) Sigurd Technologie, S.L.Sigurd - - - (83) Technologie, S.L. Total 27,411 22,858 5,370 6,425
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Shareholders' equity and capital management Act 36/2007, of 16 November, enacted by Bank of Spain Circular 3/2008, of 22 May, and subsequent amendments thereto, and Royal Decree 216/2008, of 15 February, on the equity of financial institutions, adapted Spanish legislation to the EU directives on the capital adequacy of credit institutions. This new legislation regulates the minimum capital requirement applying to Spanish credit institutions - both as individual entities and as consolidated groups - and the manner in which their capital ratios should be calculated. The strategic objectives set by the Bank's Management Committee in relation to capital management are as follows: o To comply with applicable regulations on minimum capital requirements at all times, both as an individual entity and as a consolidated group. o To pursue maximum efficiency in capital management, such that, together with other risk and return variables, capital consumption is considered a key variable in the analyses of investment decisions taken by the Group. Bank of Spain Circular 3/2008, of 22 May, and subsequent amendments thereto, establish which items should be taken into account in the calculation of shareholders' equity, for purposes of compliance with the minimum requirement established in the Circular. For purposes of the provisions of this Circular, shareholders' equity consists of core (tier 1) capital and tier 2 capital. In its approach to capital management the Group conforms to the conceptual definitions set out in Bank of Spain Circular 3/2008, as amended. Accordingly, the Group considers its eligible capital to be as indicated in section 3 of Bank of Spain Circular 3/2008 and subsequent amendments thereto. Index Annual Report 2011
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The detail of its eligible capital base and the consolidated capital requirement at 31 December 2011 and 2010 is as follows:
Thousands of euro 2011 2010
Core tier 1 capital 737,537 696,846 Share capital 124,853 111,637 Reserves 613,232 585,757 Less: Deductions (548) (548)
Tier 2 capital 72,426 66,793 Asset revaluation reserves 14,523 14,919 Capital gains on equity instruments 6,457 5,732 Generic hedging for default risk 51,446 46,142
Total eligible capital base 809,963 763,639
Capital requirement under prevailing legislation (468,669) (464,689)
Surplus 341,294 298,950
Capital ratios Tier 1 12.59% 12.00% Of which: Core Capital 12.59% 12.00% Tier 2 1.24% 1.15% Total (Minimum 8%) 13.83% 13.15%
In addition to the guarantee that its shareholders' equity provides to creditors, the Group is required, pursuant to prevailing regulations, to make annual contributions to the Deposit Guarantee Fund for Credit Institutions. The purpose of this fund is to guarantee deposits pursuant to the terms established in specific regulations. Index Annual Report 2011
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23. SOCIAL WELFARE FUND In accordance with Act 13/1998 on cooperative credit institutions, Act 27/1999 on cooperative entities and the Bank's articles of association, the Education and Development Fund must consist of at least 10% of free cash flow to be used for activities that fulfil one of the following purposes:
a) Training and education of the members and employees of Caja Rural in the principles and values of the cooperative movement or in specific material relating to its corporate or labour-related activity and other cooperative activities. b) Promoting the co-operative model and fostering relationships between co- operative entities. c) Cultural, business and welfare initiatives serving the local area or community in general, initiatives that enhance quality of life, promote community development and/or protect the environment.
The basic guidelines for application of the Education and Development Fund are agreed by members at the General Meeting.
In pursuit of the Fund's objectives, the Group may work in conjunction with other companies and entities, in such cases providing either full or partial funding.
The Education and Development Fund can be neither encumbered nor garnished and allocations to the Fund must be recognized in the consolidated statement of financial position separately from all other items, pursuant to the provisions of the regulations governing the activities of credit institutions.
The definitive allocation to the Education and Development Fund is approved by the Bank's Governing Board. Once approved, the Fund is managed by the Marketing Department. Index Annual Report 2011
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In 2011 and 2010, the Education and Development Fund was used, in accordance with the basic guidelines agreed by members at the General Meeting, for the following activities: Thousands of euro 2011 2010
Consultancy, training and promotion of the cooperative 1,428 1,465 business model Teaching and research 1,095 1,266 Sports aid 2,185 1,333 Charity work 128 173 Cultural, recreational and other activities 94 118 Economic and social development 760 989 5,690 5,344
The balance of property and equipment assigned to the Education and Development Fund at 31 December 2011 and 2010 was EUR 187 thousand and EUR 176 thousand, respectively. (Note 16).
The breakdown by item of the balances assigned to the Bank's Education and Development Fund at 31 December 2011 and 2010 is as follows:
Thousands of euro 2011 2010 Application of Education and Development Fund Maintenance costs incurred in the year 5,576 5,330 Applied to property and equipment (187) (176) Applied to other investments (619) (613) TOTAL 4,770 4,541
Amount committed 5,194 5,220 Amount not committed 3,298 3,386 Amount committed for investments 8,414 10,349 TOTAL 16,906 18,955
Education and Development Fund (Social Welfare Fund) 12,136 14,414
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24. TAX POSITION All taxes paid by the Group are open to inspection for the last four years except company income tax, which is open for the years 2007 to 2011. In accordance with tax legislation, declared taxable income cannot be considered definitive until it has been inspected by the tax authorities or four years has elapsed since the return was filed. In 2010, the inspection of the parent company's 2005 income tax was signed off with a liability of EUR 9,890 thousand, recognized under "Income tax" in the 2010 income statement.
Because the tax regulations relating to the activities of financial institutions can be interpreted in different manners, certain contingent tax liabilities for the years open to inspection could exist. Although it is not possible to objectively quantify the tax obligations that could arise as a result of future tax inspections, the Governing Board is of the opinion that the possibility of significant liabilities arising in this respect is remote, and that any such liabilities would in any case be without material impact on the financial position of the Group and, thus, the consolidated annual financial statements.
Reconciliation between accounting and taxable profit The breakdown of the balance of "Income tax" shown in the consolidated income statement for 2011 and 2010 is as follows:
Thousands of euro 2011 2010 Income tax expense for the year (9,245) (243) Income tax expense on prior years' profit - 3,836 Unallowable deductions applied in prior years - 6,054 Capitalized deductions pending application - (9,933) Tax rate adjustments to prior years (2) (4) Other taxes on income 12 10 TOTAL (9,235) (280)
Parent company profit, measured in accordance with Navarre Regional Law 24/1996, of 30 December on Company Income Tax, is taxed at 25% for cooperative earnings and 30% for non-cooperative earnings, less applicable credits and deductions. Certain deductions for double taxation, reinvestment and training expenses may be applied to the resulting tax liability. Because tax legislation permits different treatments for certain transactions, accounting profit differs from taxable profit. Index Annual Report 2011
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The Bank and its subsidiaries do not file consolidated tax returns as the subsidiaries are public limited companies and cannot therefore be included in the same tax return as the Bank, which is a cooperative entity. However, the reconciliation between the Bank's accounting profit and taxable profit for 2011 and 2010 is included below: Thousands of euro 2011 2010 Increases Decreases Total Increases Decreases Total Consolidated profit before accrued tax and after mandatory allocation to the Education and Development 25,757 35,211 Fund Permanent differences 130 (20,689) (20,559) 147 (23,412) (23,265) Adjusted accounting profit 5,198 11,946 Temporary differences - Arising in the year 36,373 - 36,373 45 - 45 - Arising in prior years 603 (63) 540 1,052 (257) 795 Taxable profit for the year 42,111 12,786
The majority of the permanent differences correspond to decreases in taxable income due to mandatory contributions to the Mandatory Reserve Fund (Note 22) and the Social Welfare Fund (Note 23). Applying the Bank's effective income tax rate to adjusted accounting profit and taxable profit and factoring in tax deductions and relief of approximately EUR 8,831 thousand, income tax expense accrued and payable for the year was -EUR 9,245 thousand and -EUR 435 thousand, respectively. Independently from the income tax expense recognized in the consolidated income statement, the Group recognized as deferred taxes in the statement of financial position tax assets corresponding to "Valuation adjustments" and "Available-for-sale financial assets", up to the moment of their sale, totalling EUR 2,925 thousand and tax liabilities corresponding to the same items totalling EUR 4,304 thousand at 31 December 2011 (compared with tax assets and liabilities of EUR 3,794 thousand and 3,821 thousand, respectively, at 31 December 2010).
Tax assets and liabilities The balance of "Current tax assets" and "Current tax liabilities" shown in the consolidated statement of financial position includes the assets and liabilities corresponding to various taxes applicable to the Group, including VAT, withholdings at source and income tax payments on account, and the provision for Company income tax relating to profit for each year (Note 2.u.). Index Annual Report 2011
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The difference between the tax expense accrued and the tax expense payable is the result of the deferred tax assets and liabilities arising due to temporary differences. The deferred taxes recognized in the statements of financial position closed at 31 December 2011 and 2010 arose from the following sources:
Thousands of euro
2011 2010 Deferred tax assets arising from: Allocations to pension funds 80 75 Available-for-sale debt securities 2,925 3,794 Available-for-sale equity instruments - - Deductions pending application 9,933 9,933 Unallowable loan loss provisions 9,034 - Reversal of origination fees 101 110 Other items 2,887 2,281 Total 24,960 16,193 Deferred tax liabilities arising from: Available-for-sale debt securities - - Available-for-sale equity instruments 4,304 3,821 Re-measurement of property 5,212 5,345 Accelerated depreciation and amortization 222 240 Other items 923 947 Total 10,661 10,353
At 31 December 2011 and 2010, the breakdown of income tax deductions and credits attributable to the parent company and pending application in future years is as follows: Deadline for application 2011 2010
Double taxation deductions - - 582 Limited deductions against tax expense 2021 1,416 2,831 Unlimited deductions against tax expense 2021 12,196 15,245 13,612 18,658
Unlimited deductions against tax expense are mainly those generated by reinvestment of the proceeds of security sales. The Group's Directors consider it probable that future taxable profits will allow the application of the above amounts and have therefore capitalized part of these deductions and credits as "Deferred tax assets". Index Annual Report 2011
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25. CONTINGENT EXPOSURES AND COMMITMENTS Contingent exposures At the close of 2011 and 2010, the breakdown of contingent exposures, defined as those amounts the Group will have to pay on behalf of third parties if the parties originally liable default, is as follows: Thousands of euro 2011 2010 Financial guarantees 32,852 29,787 Guarantees and other sureties 404,634 412,582 Irrevocable documentary credits 6,173 14,386 Other documentary credits - 1,956 Other contingent exposures (Notes 11 and 18) 499,094 550,492 Total 942,753 1,009,203
A significant proportion of these contingent exposures will mature without the Group being required to make any payment. Accordingly, the total balance of these commitments cannot be considered a real future need to provide funding or liquidity to third parties. "Other contingent exposures" includes EUR 368,900 thousand at both 31 December 2011 and 2010, for the guarantee given to Banco Cooperativo Español, S.A., in respect of bond issues backed by the Spanish government and against which the Bank received loans for the same amount from Banco Cooperativo Español, S.A. (Note 18). The same item also includes EUR 130,194 thousand and EUR 181,592 thousand at 31 December 2011 and 2010, respectively, for the guarantee provided by the Bank to cover transactions by Banco Cooperativo Español, S.A. on the interbank market (Note 11). Income from guarantee instruments is recognized under "Fee and commission income" in the consolidated income statement and is calculated by applying the rate established in the related contract to the nominal amount of the guarantee. Index Annual Report 2011
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Contingent commitments The breakdown of contingent commitments at 31 December 2011 and 2010 is as follows: Thousands of euro 2011 2010 Drawable by third parties 962,035 1,162,792 Subscribed but unpaid capital 5,244 5,676 Other contingent commitments 134,713 117,094
1,101,992 1,285,562
This includes irrevocable commitments to provide financing in accordance with certain previously stipulated conditions and deadlines. The breakdown by counterparty of amounts drawable by third parties in 2011 and 2010 is as follows: Thousands of euro 2011 2010
Government bodies 13,724 13,269 Other resident sectors Credit cards 234,414 299,598 Demand accounts 239,883 218,719 Other 473,311 630,701 Non-resident 703 505
Total 962,035 1,162,792
26. OFF-BALANCE SHEET CUSTOMER FUNDS The breakdown of funds from customers managed by the Group off the balance sheet at the close of 2011 and 2010 is as follows:
Thousands of euro 2011 2010
Companies and investment funds 570,098 505,921 Pension funds and endowment policies 389,289 356,938 Total 959,387 862,859
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The Group does not manage assets under management or financial mandates directly. Its activities are limited to marketing and the mandates are then entrusted to Banco Cooperativo Español, S.A., which signs the portfolio administration and management contract with the Group's customers and is therefore the party liable in their respect.
The breakdown of the net fee and commission income generated by the aforementioned activities in 2011 and 2010, which are included in "Fees and commissions for marketing non-banking products" (Note 30), is as follows:
Thousands of euro 2011 2010
Investment companies and funds 3,848 3,493 Pension funds and endowment policies 3,917 3,720
7,765 7,213
The Group also provides securities administration and custody services to its customers. Commitments assumed by the Group in relation to these services at 31 December 2011 and 2010 came to EUR 433,685 thousand and EUR 350,532 thousand, respectively.
27. INTEREST AND SIMILAR INCOME "Interest and similar income" includes the interest accrued in the year on all financial assets with an implicit or explicit return, calculated by applying the effective interest method, irrespective of whether they are measured at fair value. Interest is recognized gross, without deducting any tax withheld at source.
The breakdown by source of "Interest and similar income" accrued in 2011 and 2010 is as follows: Thousands of euro
2011 2010
Deposits at central banks - - Loans and advances to credit institutions 8,360 2,670 Loans and advances to customers 193,433 168,211 Debt securities 15,202 10,847 Other interest 1,890 2,060
Total 218,885 183,788
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28. INTEREST AND SIMILAR EXPENSE "Interest and similar expense" includes interest accrued in the year on all financial liabilities with an implicit or explicit return, calculated by applying the effective interest method, irrespective of whether they are measured at fair value.
The breakdown by source of Interest and similar expenses accrued in 2011 and 2010 is as follows: Thousands of euro 2011 2010
Deposits at central banks - - Loans and advances to credit institutions (Note 18) 32,845 24,668 Customer deposits (Note 18) 97,201 73,557 Debt securities (Note 18) 4,137 3,018 Other interest - -
Total 134,183 101,243
29. INCOME FROM EQUITY INSTRUMENTS "Income from equity instruments" corresponds to dividends and other remuneration on equity instruments paid from the profits of investees after the date of acquisition of the interest.
The breakdown of this line of the consolidated income statement is as follows:
Thousands of euro
2011 2010
Investments in associates - - Other equity instruments 3,266 5,521 Total 3,266 5,521
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30. FEE AND COMMISSION INCOME "Fee and commission income" reflects the sum of all fees and commissions accrued in favour of the Group in the year, except those that form an integral part of the effective interest rate on financial instruments.
The breakdown of this line of the consolidated income statement is as follows:
Thousands of euro
2011 2010 Contingent exposures 5,398 4,616 Contingent commitments 1,029 998 Currency exchange 225 152 Collection and payment services 22,630 19,735 Securities services 1,290 1,277 Sale of non-banking products 13,450 11,352 Other fees and commissions 5,607 5,749 Total 49,629 43,879
31. FEE AND COMMISSION EXPENSE "Fee and commission expense" reflects the sum of all fees and commissions accrued to the charge of the Group in the year, except those that form an integral part of the effective interest rate on financial instruments.
The breakdown of this line of the consolidated income statement is as follows:
Thousands of euro
2011 2010 Fees and commissions assigned to other 5,004 4,757 entities and correspondents Fees and commissions paid on securities 187 177 transactions Other fees and commissions (7) - Total 5,184 4,934
31. GAINS (LOSSES) ON FINANCIAL ASSETS AND LIABILITIES "Gains (losses) on financial assets and liabilities" reflects the amount of valuation adjustments on financial instruments, except those attributable to interest accrued as a result of application of the effective interest method and corrections to asset values recognized in income, and the gains or losses realized on their sale or purchase. Index Annual Report 2011
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The breakdown of the balance of this item, by type of instrument and accounting classification, is as follows: Thousands of euro 2011 2010
Financial instruments held for trading 1,857 4,680 Other financial instruments through profit and loss 65 (2) Available-for-sale financial assets 5,114 (644) Loans and advances (141) 1,285 Financial liabilities at amortized cost (Note 18) 3,023 801 Accounting hedges not included in interest (Note 13) 407 (273) Other 288 579 Total 10,613 6,426
33. PERSONNEL EXPENSES "Personnel expenses" reflects all remuneration accruing to personnel on the payroll, whether permanent or temporary, irrespective of their position or activity, in the course of the year. It includes the cost of ordinary pension plan servicing and breaks down as follows: Thousands of euro 2011 2010 Wages and salaries 31,042 32,920 Social security contributions 7,637 7,307 Transfers to defined benefits plans (Note 2.t) 75 77 Other personnel expenses 2,252 2,266 Personnel expenses of subsidiaries 11,878 10,935 Total 52,884 53,505
The breakdown by professional category and gender of the Group's average headcount is as follows:
2011 2010 Men Women Men Women Senior managers 95 9 95 9 Executives 230 132 184 122 Administrative staff 146 300 186 313 Messengers 3 - 3 - Social Welfare Fund staff - 1 - 1 Staff of subsidiaries 161 225 161 213 Total 635 667 629 658
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34. OTHER GENERAL ADMINISTRATIVE EXPENSES The breakdown of this line of the consolidated income statement is as follows:
Thousands of euro 2011 2010
Property and equipment 5,137 5,350 Computer hardware and software 9,056 8,912 Communications 2,364 2,511 Advertising and marketing 1,759 2,004 Legal 2,830 1,561 Staff travel and agency costs 1,233 1,292 Security guards and cash transportation 872 899 Subcontracted administrative services 714 752 Contributions and taxes 488 517 Other general expenses 1,212 543 Other expenses of subsidiaries 16,396 17,071 Total 42,061 41,412
Fees paid for the audit of the Bank's consolidated financial statements and the annual financial statements of its subsidiaries amounted to EUR 87 thousand in 2011 and EUR 86 thousand in 2010. The auditors also received additional fees of EUR 29 thousand and EUR 13 thousand in 2011 and 2010, respectively, for the provision of non-audit services.
35. ALLOCATIONS TO PROVISIONS The detail of this line of consolidated income statement is as follows:
Thousands of euro 2011 2010
Provisions for contingent liabilities and commitments (Note 19) (562) (108) Net allocation to other provisions (Note 19) - 89 Total (562) (19)
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36. CONTRIBUTION TO CONSOLIDATED PROFIT (LOSS) FOR THE YEAR ATTRIBUTABLE TO OWNERS OF THE PARENT The breakdown of the contributions to consolidated profit made by consolidated companies is as follows: Thousands of euro 2011 2010
Parent company (after consolidation adjustments) 33,334 36,075 Subsidiaries (4,467) (2,564) Associates (167) 1,260
28,700 34,771
37. RELATED PARTIES In addition to the information set forth in Note 5 in relation to remuneration received, details of the balances included in the consolidated statement of financial position at 31 December 2011 and 2010 and in the consolidated income statements for 2011 and 2010 that arise from transactions with related parties are as follows:
Associates Governing Board Other related and senior parties (*) management 2011 2010 2011 2010 2011 2010 Assets
Loans and advances to 27,238 20,722 392 436 2,787 2,802 customers Liabilities
Customer deposits 14,747 16,029 1,060 1,092 2,707 2,724 Other
Contingent exposures 9,925 4,210 - - 89 - Commitments 14,662 4,529 136 103 1,449 2,170 Income
Interest and similar income and fee/commission income 718 651 14 12 86 63 Interest and similar expense 148 154 22 18 51 42 Income from equity 1,552 1,127 - - - - investments
(*) "Other related parties" includes direct family members and companies related to members of the Governing Board and senior management team in accordance with the provisions of Circular 4/2004 as amended. All transactions with related parties were performed at arm's length. Index Annual Report 2011
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38. AGENCY AGREEMENTS The Bank had no "agency agreements" within the meaning of Article 22 of Royal Decree 1245/1995, of 14 July, either at the 2011 and 2010 balance sheet close or at any time in the course of those years.
39. ABANDONED BALANCES AND DEPOSITS Pursuant to the provisions of Article 18 of Act 33/2003, of 3 November, on the Property of Government Institutions (Ley del Patrimonio de las Administraciones Públicas), the Bank has no balances in accounts qualified as abandoned in accordance with the definition provided in the aforesaid article.
40. CUSTOMER SERVICES DEPARTMENT The accompanying management report includes a summary of the report presented to the Governing Board on the work performed by this Department in 2011, as required under Ministry for the Economy Order ECO/734/2004, of 11 March.
41. SEGMENT REPORTING Business segments The core business of the Caja Rural de Navarra Group is retail banking. It has no other material business lines that, pursuant to prevailing regulations, require the Group to provide information segmented by business lines. Geographical segments The parent company and all other companies of the Caja Rural de Navarra Group carry out virtually all their activities in Spain and have a similar customer base in all parts of the country. It therefore reports all its operations under a single geographical segment. Index Annual Report 2011
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41. DISCLOSURES OF DELAYED PAYMENTS TO SUPPLIERS In accordance with the disclosures required under Act 15/2010, of 5 July, amending Act 3/3004, of 29 December, which set out measures to combat bad debt in commercial transactions, and the Secondary Transitional Provision of the Spanish Accounting and Audit Institute (ICAC) Resolution of 29 December 2010, the breakdown of payments for commercial transactions by the Bank in 2011 outstanding at the year end beyond the legal payment period laid down by Act 15/2010 was as follows: 2011 Thousands of euro %
Payments within legal payment period 84,874 99.78% Other 184 0.22% Total payments in the year 85,058 100.00% Average days overdue of late payments 94 Amounts outstanding at year end beyond the legal payment period 1
Among the payments due to suppliers at 31 December 2010 no bills were outstanding beyond the legal payment period in force at that date. Index Annual Report 2011
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ANNEX Caja Rural de Navarra, Sociedad Cooperativa de Crédito Statement of financial position closed at 31 December
Thousands of euro ASSETS 2011 2010
Cash and balances with central banks 32,193 33,159 Financial instruments held for trading 17,317 15,673 Loans and advances to credit institutions - - Loans and advances to customers - - Debt securities - - Equity instruments 2,640 2,262 Trading derivatives 14,677 13,411 Memorandum items: Loaned or advanced as collateral - - Other financial assets at fair value through profit or loss 155 2,828 Loans and advances to credit institutions 155 2,828 Loans and advances to customers - - Debt securities - - Equity instruments - - Memorandum items: Loaned or advanced as collateral - - Available-for-sale financial assets 769,579 479,738 Debt securities 635,280 328,074 Equity instruments 134,299 151,664 Memorandum items: Loaned or advanced as collateral 135,004 - Loans and advances 6,766,040 6,454,590 Loans and advances to credit institutions 402,860 248,847 Loans and advances to customers 6,304,250 6,124,333 Debt securities 58,930 81,410 Memorandum items: Loaned or advanced as collateral 762,615 922,166 Held-to-maturity investments 38,227 33,367 Memorandum items: Loaned or advanced as collateral - - Index Annual Report 2011
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Thousands of euro ASSETS 2011 2010
Adjustments to financial assets due to macro-hedging - - Hedging derivatives 942 1,529 Non-current assets held for sale 22,234 8,243 Equity investments 91,926 93,733 Associates 49,162 48,823 Jointly-controlled entities - - Group companies 42,764 44,910 Pension-linked insurance contracts - - Property and equipment 107,942 111,387 Property and equipment 105,001 108,406 For own use 104,814 108,230 Leased out under operating lease - - Assigned to social projects 187 176 Investment property 2,941 2,981 Memorandum items: Acquired under finance leases - - Intangible assets - - Goodwill - - Other intangible assets - - Tax assets 23,784 14,969 Current 1,654 1,057 Deferred 22,130 13,912 Other assets 24,924 31,765
TOTAL ASSETS 7,895,263 7,280,981 Index Annual Report 2011
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Caja Rural de Navarra, Sociedad Cooperativa de Crédito Statement of financial position closed at 31 December
Thousands of euro L I A B I L I T I E S 2011 2010
Financial instruments held for trading 5,061 6,982 Deposits from central banks - - Deposits from credit institutions - - Customer deposits - - Debt securities - - Trading derivatives 5,061 6,982 Short securities positions - - Other financial liabilities - - Other financial liabilities at fair value through profit or loss - - Deposits from central banks - - Deposits from credit institutions - - Customer deposits - - Debt securities - - Subordinated liabilities - - Other financial liabilities - - Financial liabilities at amortized cost 7,057,470 6,495,069 Deposits from central banks - - Deposits from credit institutions 1,729,840 1,022,429 Customer deposits 5,222,339 5,147,528 Debt securities 71,735 293,785 Subordinated liabilities - - Other financial liabilities 33,556 31,327 Adjustments to financial liabilities due to macro-hedging - - Hedging derivatives 9,657 10,879 Liabilities associated with non-current assets held for sale - - Provisions 7,527 8,114 Provisions for pensions and similar obligations - - Provisions for taxes and other legal contingencies - - Provisions for contingent exposures and commitments 7,527 8,114 Other provisions - - Tax liabilities 10,488 10,535 Current 742 1,120 Deferred 9,746 9,415 Social Welfare Fund 12,136 14,414 Other liabilities 51,626 40,326 Shares redeemable on demand - -
TOTAL LIABILITIES 7,153,965 6,586,319
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Caja Rural de Navarra, Sociedad Cooperativa de Crédito Statement of financial position closed at 31 December
Thousands of euro 2011 2010
EQUITY
Shareholders’ equity 740,028 697,129 Share capital 124,853 111,637 Issued capital 124,853 111,637 Less: Uncalled capital - - Share premium - - Reserves 585,492 555,022 Other equity instruments - - Hybrid financial instruments - - Other equity instruments - - Less: Treasury shares - - Profit for the year 31,704 32,068 Less: Dividends and remuneration (2,021) (1,598) Valuation adjustments 1,270 (2,467) Available-for-sale financial assets 1,270 (2,467) Cash flow hedges - - Hedges of net investments in foreign operations - - Translation differences - - Non-current assets held for sale - - Other valuation adjustments - -
TOTAL EQUITY 741,298 694,662
TOTAL EQUITY AND LIABILITIES 7,895,263 7,280,981
MEMORANDUM ITEMS Contingent exposures 946,503 1,020,432 Contingent commitments 1,104,593 1,287,334
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Caja Rural de Navarra, Sociedad Cooperativa de Crédito Income statement for the year ended 31 December
Thousands of euro 2011 2010
Interest and similar income 219,494 184,195 Interest and similar expense (131,752) (99,238) Remuneration paid to holders of shares redeemable on demand - -
NET INTEREST INCOME 87,742 84,957 Income from equity instruments 4,817 7,735 Fee and commission income 50,974 45,939 Fee and commission expense (5,191) (4,934) Gains (losses) on financial assets and liabilities (net) 10,613 6,426 Financial instruments held for trading 1,857 4,680 Other financial instruments at fair value through profit or loss 65 (2) Financial instruments not measured at fair value through profit or loss 8,284 2,021 Other 407 (273) Translation differences (net) 538 466 Other operating income 3,913 3,487 Other operating expenses (5,470) (3,947)
GROSS INCOME 147,936 140,129 Administrative expenses (66,671) (66,911) Personnel expenses (41,006) (42,570) Other general administrative expenses (25,665) (24,341) Depreciation and amortization (8,652) (9,462) Provisions (net) 562 108 Impairment losses on financial assets (net) (45,563) (25,282) Loans and advances (43,273) (24,471) Other financial instruments not measured at fair value through profit or loss (2,290) (811)
INCOME FROM OPERATING ACTIVITIES 27,612 38,582 Impairment losses on other assets (net) (3,169) (5,890) Goodwill and other intangible assets - - Other assets (3,169) (5,890) Gains (losses) on the derecognition of assets not classified as non-current assets held for sale 14 373 Negative difference in business combinations - - Gains (losses) on non-current assets held for sale not classified as discontinued operations 1,310 2,109
PROFIT BEFORE TAX 25,767 35,174 Income tax 9235 280 Mandatory allocation to welfare projects and funds (3,298) (3,386)
PROFIT (LOSS) FOR THE YEAR FROM CONTINUING OPERATIONS 31,704 32,068 Profit (loss) from discontinued operations(net) - -
PROFIT FOR THE YEAR 31,704 32,068
Index Annual Report 2011
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CONSOLIDATED MANAGEMENT REPORT 2011
INTRODUCTION The year under review was marked by persistent uncertainty as to whether developed economies would have the capacity to consolidate the recovery begun in 2010 and return to the path of sustained growth. Fears that global growth would slow as the impact of monetary and financial stimulus faded in the developed world proved well-founded in the second half of the year as the fiscal crisis in many developed countries worsened.
Meagre growth expectations accentuated the concern surrounding these countries' ability to absorb the huge debt overhangs in the public and private sectors and the state of their banking systems in general. Four years on from 2007, when the first shocks rippled out to affect all sectors of the global economy, and finance and banking in particular, the situation has still not been stabilized.
Against this backdrop, the main focus of global financial tension in 2011 was the euro zone. The financial and political architecture of the single currency proved incapable of coping with times of great instability such as those seen in the sovereign debt markets of Portugal, Spain, Italy, Belgium and by the year- end even France. Like Greece and Ireland in 2010, by May Portugal was shut out of the public debt markets and forced to strike a bailout deal with the European Union and IMF. Later, at the end of July, the EU and IMF announced a second Greek bailout, whose negotiation within the EU dragged on until the end of the year and involved a more than 50% write-off by private sector holders of Greek public debt. Spanish and Italian debt, meanwhile, was falling sharply, especially in the second half of the year. Yield spreads over the 10-year German Bund rose to more than 5 percentage points at times, pushing the risk premium to its highest level since the launch of the single currency. By December, in an attempt to stave off risks of the euro zone collapsing, the majority of member states signed up to a framework agreement to launch a new era based on strict budgetary rules and some sacrifice of fiscal sovereignty. Index Annual Report 2011
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The so-called sovereign debt crisis exacerbated liquidity and solvency risks for banks in the euro zone, which had already been weakened by four tough years and, with investors now deeply distrustful, the authorities were forced to adopt far-reaching measures to recapitalize Europe's banks.
Hopes of an imminent end to the crisis raised by 2010 figures were confounded by events in 2011, as global political and economic tools that might create a simultaneous path to growth for all advanced economies remained lacking. Capital markets, as the public bellwether of confidence in the plans mapped out by politicians and institutions, are punishing the lack of determination to overcome imbalances and conflicts that demand sacrifices or concessions without which it will take far longer to overcome the economic crisis worldwide.
Wrangling and a lack of coordination between players have been all too evident in Europe. The sovereign debt crisis in the euro zone was the trigger in 2011 for a radical downgrading of economic expectations internationally that is still ongoing. Doubts have even been raised about the viability of the euro zone, an area generating around 20% of global GDP (nearly USD 12.2 trillion out of USD 62 trillion worldwide). Fears may now have receded, following the shift in direction by the governments of France and Germany over recent months, but the risk remains live and its negative impact on the international economic outlook is obvious.
The above cocktail of factors meant that the European sovereign debt crisis was the most potent of the various negative events of 2011 in its impact. It was the main reason that economic activity fell short of expectations and that global economic forecasts, particularly those for 2012, were repeatedly downgraded, affecting not just the advanced economies but also, albeit to a lesser extent, the emerging markets that had until then been largely unscathed by the crisis.
Latest projections and forecasts from the world's leading economic bodies have scaled back growth forecasts for global GDP considerably, for 2011 and 2012 alike (in some cases cutting forecasts made early in the year by half). The savage plans for fiscal austerity in most developed countries are undermining short-term growth prospects and will need to be pushed Index Annual Report 2011
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through rapidly, before the private sector has the chance to bring any relief, mired as it is in deleveraging and struggling with short-circuited credit channels. All of which makes for a very tricky outlook for the recovery in activity and employment over the next two or three years. At the same time, the absence of effective political and economic governance at global level makes it difficult to mount any effective response as the world's capital markets are dragged into the downward spiral of confidence.
In Spain, only a lively export sector offers any timid response to internal activity depressed by unemployment, associated weak consumption and the lack of investor stimulus from public and private sector alike, a situation that looks set to worsen given the expected sharp slump in GDP during 2012. The Spanish economy is trying to pull itself back together with radical reforms and adjustment measures. These began in 2009 and reached their fullest expression in 2011 with the cuts to public spending (including a constitutional change) and the effective restructuring of the financial sector to shore up its viability, a task that remains ongoing. Mass unemployment, a sharp slide in tax receipts and the heavy debt burden hanging over households and financial institutions are the main problems holding back the Spanish economy in the short and medium terms.
Spain's problems are building up on several fronts. All the processes and reforms in train are long-term measures, meaning that in the short term prospects are bleak. Leaving aside the disconcertingly high jobless rate, the real Achilles heel of the Spanish economy is the across-the-board deleveraging that needs to happen to recover from a property bubble that was years in the making.
Against this complex background, let us now turn to the Caja's performance in 2011, which is summarized in the figures and comments below.
PROFIT FOR THE YEAR For 2011 Caja Rural de Navarra posted a consolidated net profit of EUR 28,700 thousand, 17.46% lower than the prior-year figure.
Net interest income rose by 2.61% and gross income by 3.34% relative to 2010. Income from operating activities, calculated after transfers to provisions and impairment losses on financial assets, fell by 35.47% on the previous year, after the Caja set aside voluntary provisions exceeding the Bank of Spain's minimum requirements that anticipated compliance with the requirements of Royal Decree 2/2012, on measures to strengthen the financial system. Index Annual Report 2011
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The appropriation of 2011 net profit proposed by the parent company at its General Meeting includes a EUR 29,682 thousand increase in Reserves, a EUR 3,298 thousand allocation to the Education and Development Fund and a EUR 2,022 thousand allocation to Share Capital.
EQUITY Equity totalled EUR 752,608 thousand at the year-end, while the Group's consolidated eligible capital base was EUR 809,963 thousand, exceeding the minimum capital requirement established in Bank of Spain regulations by 72.82%, and giving a solvency ratio of 13.83%. The proportion of tier 1 capital was especially strong, with a ratio of 12.59%, attesting to the Group's considerable financial solidity. The core capital ratio defined by Royal Decree 2/2011, on banking sector reforms, stood at 12.61%, well above the minimum 8% required under the Decree.
The Group's equity includes its share capital, which is composed of the capital contributions made by a broad base of cooperative members. The number of members has continued to increase, reaching 133,035 at the end of 2011, up 4.70% on the 127,065 members at the prior year-end.
Moody's and Fitch-IBCA gave Caja Rural de Navarra long-term ratings of "A3" (Moody's) and "A-" (Fitch IBCA), amid a climate of widespread downgrades for financial institutions as well as national and regional issuers. These ratings place the Company in the same ratings category as the most solid banks.
DEPOSITS Customer deposits managed by Caja Rural de Navarra and recognized in its consolidated statement of financial position totalled EUR 5,221,377 thousand. Deposit volumes were 1.48% higher than at the prior-year close, an increase indicative of two significant achievements: firstly, that the Bank had successfully combined growth with profitability despite the complex competitive environment in 2011, and secondly, that it had outperformed the financial system as a whole, which shrank by 4.02% nationwide over the same period, thereby improving its competitive positioning. Index Annual Report 2011
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LOANS AND ADVANCES At the end of 2011 loans and advances to customers totalled EUR 6,321,950 thousand, an increase of EUR 184,952 or 3.01% on the previous year-end figure.
These figures confirm once again the Bank's commitment to economic and social development in its areas of operation by channelling credit to individuals as well as companies and institutions - a commitment that is all the more notable in a period when lending volumes in the wider Spanish financial sector fell by 3.2%.
Non-performing loans are having a major impact in the sector as we seek to emerge from the economic crisis. However, at the end of 2011, the Caja's non- performing loan (NPL) ratio was 3.89%, which was considerably below the sector average of 7.61%.
PRODUCTS AND SERVICES The main developments in products and services during 2011 in the Bank's different business areas are described below.
In Deposits, the Caja carried out four issues of Structured Deposits which were gradually rolled out over the year. It also launched a number of new term savings options in the form of growing deposits with two or three year maturities and revamped the wide range of promotional products included in the cash-yielding deposits portfolio to make them competitive with new developments introduced by other players in the market.
In the second half of the year, responding to the new rules on contributions to the Deposit Guarantee Fund, the Bank overhauled its entire portfolio of term deposits.
In Financing, new lending was stable on the previous year, mainly comprising home loans and loans to SMEs through the various ICO lines. In consumer finance for individuals, the Bank created various pre-approved loan packages that can be delivered through different channels and started to market a new subsidized loan that rewards customer loyalty to the Bank's products (i.e. direct salary or pension deposits, transfers, cards and insurance contracts). Index Annual Report 2011
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In Insurance, the Caja expanded the range of insurance products for institutions, adding multi-risk casualty and civil liability insurance for small- and mid-sized local authorities. It also created a website where members of the public can consult product features and cover provisions and run comparisons of the most popular insurance products for individuals.
Multi-channel options were extended with the addition of Infomail, i.e. banking correspondence by email. This service is not only quicker and more convenient, as customers no longer need to keep checking their mailbox and correspondence can be viewed onscreen, saved or printed but also supports efforts to minimize paper use.
A new Alerts Service has been introduced by the remote banking portal, Ruralvía, providing users with real-time information on account and card movements via SMS direct to their mobile. Customers who activate this service can keep constantly up-to-date with whatever type of account information they find useful, select the type of alerts they wish to receive and set the thresholds at which messages are generated.
In Investment Funds, the Bank adhered to recent policy by focusing on new Guaranteed Funds. In 2011 the division was authorized to take subscriptions for five new funds, all offering a guaranteed fixed-income return. The range of open investment funds remained largely unchanged, though two funds were converted to offer a guaranteed yield. A new quarterly magazine was launched on Ruralvía, Caja Rural's remote banking portal, giving detailed information on changes to the whole fund range, investment advice for different investor profiles and a sample of news from the fund market.
In Long-Term Savings Products, the Bank followed a similar strategy to Investment Funds, building up its guaranteed return packages. Seven new issues were launched, all paying guaranteed fixed rates, and are being distributed through five new Pension Plans and two new guaranteed EPSVs (voluntary social insurance funds). The information on these products available via Ruralvía was substantially upgraded and the Bank also enhanced its range of life insurance savings policies, adding several products that pay out as temporary or life-time annuities. Index Annual Report 2011
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For Young People aged up to 30, communications were stepped up through various channels, including a new website and a presence on the social networking sites most frequented by this demographic. The Bank can use these new media to advertise product benefits and post news about the service, creating a more immediate and interactive communications link.
In Cards, the main development was the growth in EMV-enabled cards, improved operating systems for the ATM network and the issue of eight new affinity and private cards in partnership with several retailer groups.
BRANCHES AND EMPLOYEES At the end of 2011 Caja Rural de Navarra had 906 employees and 243 branches, 103 of them located outside Navarre (37 in Guipuzcoa, 26 in Vizcaya, 24 in La Rioja and 16 in Alava).
The Caja is maintaining its current number of branches and employees, defying the current trend toward reducing capacity in the financial sector.
CAJA RURAL FINANCIAL GROUP The Caja Rural Group has adopted an integration system based on the federated banking model under which associates can retain their autonomy, provided they adhere to the essential prerequisites of banking activity and business efficiency, while escaping the limitations that their small scale and regional focus would otherwise impose on the activities of each entity.
The Group continued expanding at a steady pace in 2011, positioning itself at the vanguard of the Spanish financial sector.
Its key performance indicators for the year are set out below:
Thousands of euro % change relative to 31.12.2011 31.12.2010 Total assets 56,536,134 6.95% Loans and advances 39,222,718 -1.88% Liabilities 40,583,863 0.26% Shareholders' equity 5,449,047 -3.05% Net profit 163,170 -16.00% Index Annual Report 2011
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Through the Caja Rural Group we can address the new challenges raised each day by the increasingly innovative and demanding marketplace from an advantageous competitive position, thanks to a differentiated business model that is designed to provide maximum security and stability to all Group members in line with other European banking models that have proved highly successful both in the past and during the current crisis, such as Crédit Agricole of France, Rabobank of the Netherlands and DZ of Germany.
Banco Cooperativo Español, Rural Servicios Informáticos and Seguros RGA remain the stalwarts of the Caja Rural Group through which all its strategic development projects are channelled.
SUMMARY OF THE ANNUAL REPORT OF THE CUSTOMER SERVICES DEPARTMENT In accordance with the provisions of Article 17 of Order ECO/734/2004, of 11 March, issued by Spain's Ministry for the Economy, on the Customer Services Department of Financial Institutions, a summary of the Department's activities in 2011 is presented below.
A total of 403 customers contacted the Department to file complaints or claims or make suggestions in the course of 2011. This is still a high number of complaints but the sharply rising trend seen in recent years has been broken, with complaints in 2011 down by approximately 22% from 517 in 2010.
Of the 403 customers who contacted the Department:
- 256 did so by mail - 136 by telephone - 11 by e-mail
By type of contact, the total breaks down as follows:
- 381 Complaints - 14 Claims - 8 Suggestions
Of the 14 claims received, six were settled in favour of the customer. The other eight were dismissed. The cost to Caja Rural de Navarra of settling these six claims was 847.01 euro Index Annual Report 2011
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By region, the breakdown is as follows:
- Pamplona area (including Head Office): 30 - Estella area: 15 - Tudela area: 47 - Tafalla area: 38 - Pamplona-Urbanas area: 115 - La Rioja area: 35 - Basque Country: 118 - Central Services: 5
The most common causes of query or complaint were:
- Interest, commissions, service fees, charges: 124 - Loans and advances, interest rate cover and minimum interest mortgage repayment clauses: 105 - Poor customer support, bad service, excessive waiting time, etc: 81 - Problems with cards: 33 - Technical issues (problems with ATMs, account updaters): 14 - Advertising, campaigns, promotions, gifts: 14 - Insurance: 8 - Human resources: 1 - Requests for Basque-speaking staff: 1 - Other: 22
As the list shows, most of the complaints and claims received related to charges for services (fees for cards, accounts and missed payments or transfers).
Average resolution or response time, from the date of receiving the customer query or complaint, was 7.5 days.
In addition to the individual action taken in response to each complaint or claim received, a Quality Committee meets every four months to consider the complaints received and take appropriate preventive and improvement measures. Index Annual Report 2011
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FINANCIAL RISK MANAGEMENT The main risks to which the Caja is exposed in its financial instrument transactions are detailed in Note 6. In addition, Notes 8, 9, 10, 11, 12, 13 and 18 include information on the various different portfolios of financial instruments.
RESEARCH AND DEVELOPMENT ACTIVITIES The Group engaged in no research and development activities in 2011.
OUTLOOK FOR 2012 The Bank has approved a new 2012-2015 Strategic Plan which lays out the general strategic lines of action to be applied over these years. The Plan is constantly reviewed to monitor progress and will serve as a benchmark for annual planning over the period.
Thus, in 2012, the Bank will be applying the general lines of action set out in the Plan, which is aimed at improving net interest income and market positioning for the volumes the Bank has under management. Index Annual Report 2011
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ANNUAL CORPORATE GOVERNANCE REPORT
OTHER ISSUERS OF SECURITIES QUOTED ON OFFICIAL SECONDARY MARKETS THAT ARE NOT SAVINGS BANKS (CAJAS DE AHORRO)
ISSUER INFORMATION FINANCIAL YEAR 2011
COMPANY TAX IDENTIFICATION NUMBER F31021611
Company name: CAJA RURAL DE NAVARRA, S. COOP. DE CREDITO
Registered office: PLAZA DE LOS FUEROS, 1 31003 PAMPLONA - NAVARRA
This Corporate Governance report has been drawn up to comply with the provisions of Article 116 of Act 24/1988, of 28 July, the Spanish Securities Market Act, of Order ECO/3722/2003, of 26 December, and of National Securities Market Commission Circular 1/2004, of 17 March. Its content and structure conform strictly to the model established in Annex II of the aforementioned Circular 1/2004. Index Annual Report 2011
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A OWNERSHIP STRUCTURE
A.1. Give details of the owners of significant holdings in the company at the close of the year:
Name or company name of % of share capital shareholder
A.2. Indicate, as appropriate, any relationships of a family, commercial, contractual or corporate nature existing between the owners of significant holdings, insofar as they are known to the company, unless they have scant relevance or arise from the ordinary course of business:
Name or company name of related Type of relationship Brief description persons
A.3. Indicate, as appropriate, any relationships of a commercial, contractual or corporate nature existing between the owners of significant holdings and the company, unless they have scant relevance or arise from the ordinary course of business:
Name or corporate name of related Type of relationship Brief description persons
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B MANAGEMENT STRUCTURE OF THE COMPANY
B.1. Board of Directors B.1.1. Detail the maximum and minimum number of directors or members of the governance body as per the articles of association:
Maximum number of directors/board members 15
Minimum number of directors/board members 15
B.1.2.Fill out the following table on the members of the board and their status: MEMBERS OF THE GOVERNING BOARD
Name or company name of Representative Date last Status director/board member appointed IGNACIO TERES LOS ARCOS 08-05-2009 OTHER EXTERNAL JOSE MARIA ARIZALETA NIEVA 08-05-2009 OTHER EXTERNAL ISIDRO BAZTERRICA MUTUBERRIA 08-05-2009 OTHER EXTERNAL LUIS MIGUEL MATEO MATEO 08-05-2009 OTHER EXTERNAL JESÚS ANDRÉS MAULEÓN ARANA 06-05-2011 OTHER EXTERNAL FRANCISCO JAVIER ARTAJO CARLOS 06-05-2011 OTHER EXTERNAL PEDRO MARIA BEORLEGUI EGEA 08-05-2009 OTHER EXTERNAL JOSE LUIS BARRIENDO ANTOÑANZAS 06-05-2011 OTHER EXTERNAL JOSE ANGEL EZCURRA IBARROLA 06-05-2011 OTHER EXTERNAL JOSÉ LUIS SARABIA MORENO 06-05-2011 OTHER EXTERNAL PEDRO BULDAIN ZOZAYA 06-05-2011 OTHER EXTERNAL MELCHOR MIRANDA AZCONA 06-05-2011 OTHER EXTERNAL LUIS RECARTE GOLDARACENA 08-05-2009 OTHER EXTERNAL JOSE JAVIER LOPEZ MORRAS 29-08-2008 OTHER EXTERNAL
B.1.3.List the board members, if any, who hold offices as directors or executives at other companies forming part of the company's group:
Name or company name of Company name of group Position director/board member company
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B.1.4.Fill out the following table on the aggregate compensation paid to directors in the year:
Concept Individual Group (Thousands of euro) (Thousands of euro) Fixed compensation 11 0 Variable compensation 0 0 Per diems 43 0 Other compensation 0 0 Total 54 0
B.1.5. List the members of senior management who are not executive directors and indicate the total compensation paid to them in the year:
Name or company name Position IGNACIO ARRIETA DEL VALLE MANAGING DIRECTOR ALBERTO UGARTE ALBERDI DIRECTOR, RISK DEPARTMENT FELIX SOLA ARRESE DIRECTOR, GENERAL SECRETARIAT ISAAC LAZARO SORIANO SECRETARY, AUDIT COMMITTEE ANGEL LECUMBERRI SEVIGNE COMMERCIAL DIRECTOR MIGUEL GARCIA DE EULATE DIRECTOR, TREASURY OPERATIONS JUAN MARIA AYECHU REDIN DIRECTOR, BUSINESS BANKING FRANCISCO JOSE RODRIGUEZ LASPIUR DIRECTOR, MANAGEMENT CONTROL
Total compensation received by senior management 981 (thousands of euro)
B.1.6.State whether the bylaws or board regulations set a limited term of office for members of the board of directors:
YES NO X
Maximum number of years in office 0
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B.1.7.State whether the individual and consolidated financial statements submitted to the board of directors for approval are certified previously,
YES NO X
Identify, if appropriate, the person(s) certifying the individual and consolidated accounts for their presentation by the Board:
Name or company name Position
B.1.8.Explain the mechanisms, if any, established by the board of directors to prevent the individual and consolidated financial statements prepared by it from being presented at the general meeting with a qualified auditors' report.
B.1.9.Is the board secretary a director?
X NO YES
B.1.10. Describe the mechanisms, if any, established by the company to preserve the independence of the auditors, of financial analysts, of investment banks, and of rating agencies. The Audit Committee carries out annual checks to ensure the auditor (currently PriceWaterhouseCoopers Auditores, S.L.) complies with requirements and that there is no situation that could pose a risk to their independence. Index Annual Report 2011
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B.2. Committees of the board of directors. B.2.1.List the management bodies: Number of members Duties EXECUTIVE COMMITTEE 5 SEE POINT B.2.3 AUDIT COMMITTEE 6 SEE POINT B.2.3
B.2.2.Give details of all committees of the board of directors and their members: EXECUTIVE OR MANAGEMENT COMMITTEE
Name or company name Position JOSE LUIS BARRIENDO ANTOÑANZAS CHAIRMAN LUIS RECARTE GOLDARACENA MEMBER IGNACIO TERES LOS ARCOS MEMBER AND SECRETARY JOSE ANGEL EZCURRA IBARROLA MEMBER JOSE MARIA ARIZALETA NIEVA MEMBER
AUDIT COMMITTEE
Name or company name Position ISAAC LAZARO SORIANO MEMBER AND SECRETARY FRANCISCO JOSE RODRIGUEZ LASPIUR MEMBER LUIS RECARTE GOLDARACENA MEMBER IGNACIO TERES LOS ARCOS MEMBER JOSE ANGEL EZCURRA IBARROLA CHAIRMAN JOSE MARIA ARIZALETA NIEVA MEMBER
APPOINTMENTS AND REMUNERATION COMMITTEE
Name or company name Position
STRATEGY AND INVESTMENTS COMMITTEE
Name or company name Position
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B.2.3. Describe the rules of organization and operation and the responsibilities attributed to each of the board committees. Where applicable, describe the powers conferred upon the chief executive officer. EXECUTIVE COMMITTEE The Executive Committee was established by resolution of the Governing Board and is composed of a chairman, deputy chairman, secretary and two members of the Governing Board. Its functions are those delegated by the Governing Board and can only include temporarily or permanently a part of the Board's attributes and powers. The main purpose of the Committee, which meets once a month, is to give the Caja greater flexibility in decision making and approval of risks.
AUDIT COMMITTEE The Audit Committee meets regularly for both ordinary and extraordinary meetings. Ordinary meetings are held every quarter, while extraordinary meetings take place at the request of any member of the Committee whenever due grounds for a meeting exist. The Committee's core responsibility is to maintain an efficient internal audit system via ongoing monitoring and supervision of its operation, using to this end the services of both the internal audit unit and the external auditors.
B.2.4.State the number of audit committee meetings held in the year:
Number of meetings 4
B.2.5.If there is an appointments committee, indicate whether all of its members are non-executive directors.
YES NO
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C RELATED-PARTY TRANSACTIONS C.1. Give details of material transactions entailing a transfer of funds or obligations between the company or entities of its group and the significant shareholders of the company:
Name or company Name or company Nature of Type of transaction Amount (thousands name of significant name of company relationship of euro) shareholder or group company
C.2. Give details of material transactions entailing a transfer of funds or obligations between the company or entities of its group and the significant shareholders of the company:
Name or company Name or company Nature of Type of relationship Amount (thousands name of name of company relationship of euro) director/board or group company member or executive
C.3. Give details of material transactions with other companies of the same group, where such transactions are not eliminated in the process of preparing the consolidated financial statements and do not fall within the course of the company's ordinary business, as regards their subject-matter and terms and conditions:
Company name of group company Brief description of transaction Amount (thousands of euro)
C.4. Identify, as appropriate, the conflict-of-interest status of the company's directors, as provided for in Article 127 ter of Spanish Corporations Law. Index Annual Report 2011
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C.5. Give details of the mechanisms in place for detecting, identifying and resolving any potential conflicts of interest between the company and/or its group, and its directors/board members or executives. Article 48 of the Bank's articles of association contains the following provisions in this regard: Contracts concluded and/or obligations assumed by Caja Rural that do not form part of the provision of the financial services that constitute its corporate purpose and are made in favour of members of the Governing Board or senior management, or their first- or second-degree relatives by blood or marriage, shall not be valid unless first approved at the General Meeting. Persons involved in the conflict-of-interest situation shall not be permitted to take part in the related vote at this Meeting. Approval at the General Meeting shall not be required when the contracts or obligations in question are related to the person's status as a member. Resolutions of the Governing Board or Executive Committee relating to cooperative transactions and services in favour of members of the Governing Board, Executive Committee, General Management or their first- or second- degree relatives by blood or marriage shall necessarily be adopted by secret ballot, subject to the item's inclusion on the agenda with due transparency, and shall require a majority of at least two thirds of all Directors. Where the beneficiary of the transactions or services is a Director or relative thereof, as indicated above, the beneficiary shall be deemed to be in a conflict-of-interest situation and shall not be permitted to take part in the vote. Once the secret ballot has taken place and the result has been announced, any reservations or disagreements with regards to the resolution adopted must be duly recorded in the minutes. The provisions of the foregoing paragraphs shall also apply in relation to the establishment, suspension, modification, renewal or extinguishment of obligations and rights between the cooperative entity and entities at which the aforesaid persons or members of their family are proprietors, board members, directors, senior executives, advisors or core members with capital interests or five per cent or more. Index Annual Report 2011
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D RISK CONTROL SYSTEMS
D.1. General description of the risk policy of the company and/or its group, giving details of and evaluating the risks covered by the system, together with evidence that the system is appropriate for the profile of each type of risk. The main risks inherent in our banking activities are the following: • Credit risk: This is the risk of potential losses being incurred when loans and advances cannot be recovered. Where the bank acts as guarantor, the risk lies in the possibility of customers' defaulting on their commitments, and the Caja therefore being required to assume these commitments by virtue of guarantees provided. This is the most significant risk assumed by the Caja, since its activities are concentrated mainly on the retail banking business. • Interest rate risk: This consists of the risks arising as a result of potentially adverse fluctuations in interest rates on assets and liabilities. • Liquidity risk: This is the risk of potential difficulties in raising or accessing liquid assets in sufficient quantity and value to cover the Group's payment commitments at any time. • Market risk: This consists of the risks arising as a result of potentially adverse fluctuations in the market price of marketable financial instruments and the exchange rates of the currencies in which the Group's balance sheet assets and liabilities or off-balance sheet commitments and exposures are denominated. • Operational risk: The Basel II Capital Accord (Bank of Spain Circular 3/ 2008 on solvency requirements) introduces capital requirements for this type of risk. Operational risk is the risk of suffering losses due to inadequate or failed processes, personnel or internal systems or due to external events. This definition includes legal risk, but excludes strategic and reputational risks. Index Annual Report 2011
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D.2. Indicate the control systems in place for evaluating, mitigating or reducing the main risks of the company and its group. • Credit risk: Caja Rural de Navarra's risk management procedure is initiated as soon as a customer applies for a loan and ends when the funds lent have been repaid in full. When granting loans and credit facilities, the Caja places great importance on case-by-case analyses, which take account of the type of applicant, type of facility, the applicant's repayment capacity and the guarantees provided. Once approved and arranged, all loans and credit facilities are subject to ongoing monitoring, which may take the form of either of the following: In the case of high-risk customers (either individually or as part of an economic group), the Caja monitors financial position, any increases in system debt, payment record, etc.; for all other customers, all transactions that result in payment incidents are monitored. In addition to monitoring individual customers and customer groups, the Group monitors its investment portfolio by product, by interest rate and by decision-making centre, with a view to identifying potential changes in portfolio returns and the manner in which credit facilities are being granted (amounts, rates, charges, etc.) such that decisions affecting the investment policy to be adopted at any given time can be taken as quickly as possible. In terms of credit risk concentration, the Bank of Spain's regulations establish that exposure to any one customer or group of customers constituting an economic group must not reach 25% of an entity's eligible capital base. Additionally, the sum of all major risks (defined as exposures equivalent to more than 10% of the entity's equity) should be less than eight times the eligible capital base. The entity's eligible capital base is used for the purpose of calculating the Bank of Spain's solvency ratio. The Caja complies with all legal limits established in this regard. • Interest rate risk: To analyse and control this risk, the Caja has established an Assets and Liabilities Committee (ALC) that meets each quarter to assess, inter alia, the sensitivity of its statement of financial position to changes in the yield curve in various scenarios and set short- and medium-term policies for managing prices and applications of funds. • Liquidity risk: Caja Rural de Navarra monitors the performance of those balance sheet items that affect its liquidity on an ongoing basis, keeping within certain limits and using dedicated tools to predict potential fluctuations that may require action to sustain short-, medium- and long-term liquidity. These controls are carried out by the ALC. Index Annual Report 2011
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• Market risk: The main controls applied for market risk are the various limits on market activity in the form of ceilings on fixed income and equity investments and stop-losses. The Caja also applies concentration limits on exposures to securities and economic sectors, as well as on positions in foreign currency. • Operational risk: Caja Rural de Navarra has adopted a standard operational risk management model for identifying and monitoring operational risk. Improvement plans for critical risks have been drawn up, and the persons responsible for their execution and corresponding timetable have been defined. Loss events are registered in a loss event data base which is also used to produce reports that facilitate decision making to minimize risk.
D.3. If any of the risks affecting the company and/or its group have materialized, indicate the circumstances that caused them and whether the control systems in place worked. The normal processes of the Bank's operations include all the established controls and methods to manage the risks inherent to its business and there is no need to highlight any particular instance that affected the normal functioning of the Bank. D.4. Indicate whether any committee or other governing body is responsible for establishing and overseeing these control mechanisms and give details of its functions. The Risk department ensures compliance with the policies, methods and procedures approved by the Governing Board to meet the requirements of Bank of Spain Circular 4/2004, of 22 December, on credit risk. Circular 4/2004 states that "entities shall establish policies, methods and procedures for the granting, analysis and documentation of debt instruments, contingent risks and contingent liabilities…and the identification of their impairment and measurement of the amounts necessary to hedge such credit risk, whether from insolvency attributable to the customer…" Specifically, they set the general guidelines for the Bank's counterparty, credit and concentration risk which must be complied with, regarding: - lending policy - criteria for approving lending or other transactions - pricing policy Index Annual Report 2011
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- delegation of powers - requirements for pre-approval analysis - required documentation for each type of transaction - loans to the developer - formalization and administration of transactions - monitoring of credit risk - sale of repossessed assets - policy for financing related parties - criteria for classification of different risk categories and ways of quantifying impairment losses The Bank's internal audit department ensures that the various areas comply with policy, reporting any instances of non-compliance to the Governing Board, having evaluated or established their extent, and proposing corrective or enhancement measures when it sees fit. The Assets and Liabilities Committee oversees market, liquidity and interest risks, including specifically: - monitoring the investment portfolio - control of limits set by entities - control of changes in interest rates and their implications for the management of prices and resources - control of VAR - control and management of liquidity limits
The Operational Risk Committee manages and monitors operational risk, addressing the following points: - exposure to and occurrence of operational risks - Controlling capital for operational risks: total and allocation by business line - Determining communication and/or training policies - Deciding significant action plans Index Annual Report 2011
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E GENERAL MEETING OR EQUIVALENT BODY
E.1.List the quorums for convening general meetings established in the articles of association. Describe how these differ from the system of minimum quorums established in Spanish Corporations Law or other applicable legislation. For general meetings to be validly convened, at least three-quarters of the Preparatory Meetings must first have taken place, as established in the articles of association. For meetings to be duly convened on first call, no less than 50% of the representatives elected in these Preparatory Meetings must be present. On second call, the presence of 40% of the elected representatives and corporate officers is sufficient.
E.2.Explain the rules for adopting corporate resolutions. Describe how they differ from the system of minimum quorums established in Spanish Corporations Law, or other applicable legislation. Resolutions are adopted by majority vote. A majority of two-thirds of the votes is necessary for the adoption of resolutions modifying the articles of association or relating to mergers, spin-offs, liquidations or global assignments of assets and liabilities. Two-thirds of the votes is also required to agree the removal or revocation of appointment of members of the Governing Board and to adopt any resolutions relating to asset, financial, organization or operational changes at the Caja where such changes are of an exceptional nature. Changes affecting at least 25% of the Group's total assets are considered changes of an exceptional nature.
E.3.List the rights held by shareholders in respect of General Meetings. - Members have the right to vote and are eligible to stand as candidates for positions on corporate bodies. - Members have the right to make proposals and to speak and vote on the adoption of resolutions at General Meetings. - Members have the right to receive the information they need to exercise their rights and fulfil their obligations.
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E.4.Briefly indicate the resolutions adopted by shareholders at the general meetings held in the reporting year and the percentage of votes with which each resolution was adopted. 1 - Appointment of two member-controllers to draw up and validate the list of attendees (unanimously approved). 2. - Appointment of two member-controllers to approve the minutes for the General Meeting (unanimously approved). 3. - Report on the convocation and staging of the Preparatory Meetings (unanimously approved). 4. - Election, appointment and acceptance of positions on the Governing Board (unanimously approved). 5.- Reading and approval, where appropriate, of the annual financial statements (statement of financial position, income statement, statements of changes in equity, cash flow statement and notes to the financial statements), proposal for the calculation and appropriation of net surplus for the year, proposal for setting the basic policy for application of the Education and Development Fund, and Management Report (unanimously approved). 6.- Reading of the opinion issued by the auditors (unanimously approved). 7.- Proposal for the company that is to audit the annual financial statements and the management report (unanimously approved). 8.- Proposed interest rates to be applied to mandatory contributions (unanimously approved). 9.- Proposal to authorise the Governing Board to issue securities, shares and other finance vehicles (unanimously approved).
E.5.Indicate the URL and means of accessing corporate governance content on your website. Caja Rural de Navarra's web address is: www.ruralvia.com/navarra The corporate governance content on the website is accessed via the following links: - Institutional information - Investor information - Material events
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E.6.State whether the various syndicates of holders of securities issued by the company, if any, have met and, if so, the purpose of the meetings held in the reporting year and the main resolutions adopted.
F DEGREE OF COMPLIANCE WITH CORPORATE GOVERNANCE RECOMMENDATIONS Indicate the extent to which the company complies with current corporate governance recommendations and, where applicable, those that have not been adopted. In the event of non-compliance with any of the recommendations, describe the recommendations, rules, practices or criteria applied by the company. Until the single document referred to in Order ECO/3722/2003, of 26 December, is prepared, the recommendations set out in the Olivencia and Aldama Reports, insofar as they apply to your company, should be taken as a reference for filling out this section. Caja Rural de Navarra is a cooperative credit institution whose corporate structure is governed by the Act on cooperative credit institutions (Act 13/ 1989 of 26 May), its accompanying Regulations (Royal Decree 84-1993 of 22 January) and the Law on cooperative entities (Act 27/1999 of 16 July), based on the cooperative principles published by the international cooperative alliance, but revised in line with the abovementioned laws to allow members to cast more votes in proportion to shares in the equity up to a certain ceiling. These principals and their legal implementation define functional rules that are different from those of listed companies. The unified good governance code, endorsed by the CNMV in a single document on 22 May 2006 is designed mainly for listed companies. That said, the key points governing the relationship of members with the Bank are governed by various of the Bank's articles of association, which make it clear that by virtue of the Bank's legal form and articles of association, no member can exercise decisive control over the Bank, nor make binding decisions in the general meeting based on their stake in the equity, nor can they appoint special representatives to its board, thereby guaranteeing that its actions shall always be independent of third parties. The articles of association also lay down detailed rules for the functioning of the Board and Executive Committee, which make the same points with equal clarity. Index Annual Report 2011
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G OTHER INFORMATION OF INTEREST List and explain below the contents of any relevant principles or aspects of corporate governance applied by the company that have not been covered by this report. This section may include any other relevant but not re-iterative information, clarification or detail related to previous sections of the report. Specifically, indicate whether the company is subject to corporate governance legislation from a country other than Spain and, if so, include the compulsory information to be provided when different from that required by this report. This Annual Corporate Governance Report was approved by the Company's Board at the meeting held on 23-03-2012. List the directors that voted against or abstained from approving this report. Index Annual Report 2011
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ANNEX TO THE 2011 ANNUAL CORPORATE GOVERNANCE REPORT
INTERNAL CONTROL OVER FINANCIAL REPORTING (ICFR)
This Annex has been drawn up in accordance with the CNMV's guidelines, published in June 2010, for describing Internal Control over Financial Reporting (ICFR)
CONTROL ENVIRONMENT
1. The bodies and/or functions responsible for: (i) the existence and regular updating of a suitable, effective ICFR; (ii) its implementation; and (iii) its monitoring.
• The Governing Board is ultimately responsible for the existence and regular updating of a suitable, effective ICFR. • The Audit Committee is responsible for supervision of ICFR, including control of the preparation and presentation process, compliance with applicable standards, appropriate definition of the scope of consolidation and correct application of accounting principles. The Audit Committee relies on Internal Audit to oversee the ICFR system. • The Management Control Department is responsible for the design, implementation and operation of ICFR. It will run a process to identify risks in the preparation of financial reporting, draw up the descriptive documentation and flow charts of activities and control and direct the implementation and execution of ICFR. Index Annual Report 2011
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The Governing Board states in Article 39 of the Corporate Governance Code:
Article 39. Public relations, general.
1) The Governing Board shall take all necessary steps to ensure that annual, half-yearly or quarterly financial reporting and any other financial reporting that may be done in the interests of prudence is prepared in accordance with the same principles, criteria and professional best practice as the annual financial statements and is equally true and fair? To this end, all such information shall be reviewed by the Audit Committee. 2) The Governing Board, if considered necessary convenient, shall include in its annual published documentation the governance rules of the Caja and the degree of Compliance with the Corporate Governance Code.
The rules of the Audit Committee, which is drawn from the Governing Board, includes the following duties:
• To supervise financial reporting and the financial statements for the year. • To check compliance with internal standards, rules and laws that effect the activities of the organization.
2. Departments and/or mechanisms in charge of: (i) the design and review of the organizational structure; (ii) defining clear lines of responsibility and authority, with an appropriate distribution of tasks and functions; and (iii) deploying procedures so this structure is communicated effectively throughout the company, with particular regard to the financial reporting process.
Oversight of the organizational structure is the responsibility of General Management via the Human Resources Department which, based on needs identified by the Caja Rural de Navarra Group, analyzes and adapts the departmental and branch structure, defining and assigning functions to the different members of each department and business line. To this end there are job descriptions which identify each post within the organizational chart. Index Annual Report 2011
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Any material change to the organization is approved by the Managing Director and published through Internal Communications by corporate email and on the corporate intranet, to which all employees have access. The intranet contains an organizational chart that is continuously updated. There are operational procedure manuals covering most of the Bank's business areas, available to all employees through the intranet.
3. The existence or otherwise of the following components, especially in connection with the financial reporting process: • Code of conduct, approving body, dissemination and instruction, principles and values covered (stating whether it makes specific reference to record keeping and financial reporting), body in charge of investigating breaches and proposing corrective or disciplinary action. • 'Whistle-blowing' channel, for the reporting to the Audit Committee of any irregularities of a financial or accounting nature, as well as breaches of the code of conduct and malpractice within the organization, stating whether reports made through this channel are confidential. • Training and refresher courses for personnel involved in preparing and reviewing financial information or evaluating ICFR, which address, at least, accounting rules, auditing, internal control and risk management. There is a code of conduct, with which all employees of Caja Rural de Navarra Group are familiar, setting out guidance for good conduct based on professional ethics and the obligation to be aware of and comply with regulations applicable to the Bank. It is planned to incorporate specific reference to record-keeping and financial reporting as recommended by the supervisory authorities. There is no specific formal whistle-blowing channel for the confidential reporting of financial or accounting irregularities to the Audit Committee under conditions of anonymity. However, the employees' code of conduct expressly etablishes the possibility of employees' highlighting instances of irregular or unethical actions, under conditions of confidentiality, which would obviously include financial and accounting irregularities. Index Annual Report 2011
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Communication of Unethical or Fraudulent Actions If any employee should become aware of irregular or unethical actions by Company employees, he/she is obliged to notify the Caja immediately. The Caja has a number of persons to whom such circumstances may be reported, in addition to the line manager, who should be the first port of call. The Area Manager or Chief of Human Resources are the most appropriate persons to notify. All communications of this type will be immediately investigated under conditions of confidentiality. The Caja will ensure the absence of reprisals for any employee who makes allegations of this kind. Similarly, the rules of the Audit Committee Rules list among the Committee's responsibilities for internal control and compliance: • To maintain the ethics of the organization, investigate any cases of irregular or fraudulent conduct and any allegations or suspicions brought to their attention as well as any conflicts of interest affecting employees. Once a year, every employee of Caja Rural de Navarra undergoes a professional assessment and an action plan is drawn up including measures to improve areas where they are found to be weak, which is centred on training. The Training Department within the Human Resources Department has developed a training plan including traditional and online courses which are open to all employees of Caja Rural de Navarra. All units involved in the preparation of financial reporting have been trained in financial reporting and receive continuous refresher courses as standards change. These courses cover first-time adoption of standards in the current year and those in the process of adoption that will take effect in future years. Index Annual Report 2011
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IDENTIFYING RISKS TO FINANCIAL REPORTING 4. The main characteristics of the risk identification process, including risks of error or fraud, stating: • Whether the process exists and is documented. • Whether the process covers all financial reporting objectives (existence and occurrence; completeness, valuation, presentation, disclosure and comparability, and rights and obligations), is subject to update and, if so, with what frequency. • Whether a specific process is in place to define the scope of consolidation, with reference to the possible existence of complex corporate structures, special purpose vehicles, holding companies, etc. • Whether the process addresses other types of risk (operational, technological, financial, legal, reputation, environmental, etc.) insofar as they may affect the financial statements. • Which of the company's governing bodies is responsible for overseeing the process. For Caja Rural de Navarra, like any other banking institution, risk management is a core part of its business. Risk identification processes are therefore clearly defined. The Bank knows which areas and departments impact financial reporting and therefore which areas or departments are material, as well as the risks of error within these which may have an impact on financial reporting. The risk assessment process covers all financial reporting objectives (existence and occurrence; completeness; valuation; presentation, disclosure and comparability; and rights and obligations). The material areas and departments have identified where the possibilities of error in financial reporting lie which might have a material impact on the Bank. Risks of error or omission in financial reporting are included in the design and development of operating procedures for every area with critical impact on financial reporting. Index Annual Report 2011
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Nevertheless: • The accounting information used to prepare the financial statements is based on heavily automated processes.The vast majority of transactions are automatically recorded and associated with a process that generates the right accounting information for record keeping. The design and maintenance of the accounts used to monitor transactions is the responsibility of the Management Control Department. No other area is authorized to interfere with this process. In this way the system ensures that: • All events reflected in financial reporting exist and have been recorded at the proper time. • The information reported reflects all the transactions and events to which the Bank was party. • All transactions are recorded and measured in accordance with applicable accounting standards. • Transactions are classified, presented and disclosed in line with applicable regulations. • Internal Audit will oversee the process of preparing financial reporting and the effectiveness of controls put in place to ensure its proper publication.
CONTROLS 5. Documentation and flow charts of activities and controls (including those addressing the risk of fraud) for each type of transaction that may materially affect the financial statements, including procedures for closing accounts and specific review of critical judgements, estimates, evaluations and projections. Caja Rural de Navarra has an action plan in place to document formally and in standardized format all areas and processes identified as material to the Bank, including those covering the closing of accounts, consolidation and exercise of critical judgments, estimates, and projections, among others. The Caja has controls in place for the processes of closing accounts and review of critical judgments, estimates, evaluations and projections for the following processes and transactions, which might materially affect the financial statements: o Impairment losses on certain financial instruments. Index Annual Report 2011
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o The assumptions used in the actuarial calculation of liabilities and commitments for post-employment benefits. o The useful lives of property and equipment and intangible assets o The measurement of goodwill arising on consolidation o The fair value of certain financial assets not listed on official secondary markets. o Estimates used to calculate other provisions o Income tax and deferred tax assets and liabilities
6. Internal control policies and procedures for IT systems (including secure access, control of changes, system operation, continuity and segregation of duties) giving support to key company processes regarding the preparation and publication of financial information. The rural savings banks that make up the Caja Rural Group have set up a number of companies to improve efficiency and achieve economies of scale. These include the technology services company Rural Servicios Informáticos SC and Banco Cooperativo Españo, SA. Rural Servicios Informáticos SC provides IT services to all rural savings banks making up the Caja Rural Group. Banco Cooperativo Español SA provides services including treasury management and capital markets services, investment fund administration and management, Spanish and international transfer systems, and support services for the rural savings banks in relation to tax, legal, organizational and regulatory issues, etc. Rural Servicios Informáticos SC provides applications and IT management services from a shared central platform. Applications include those for transaction account-keeping and financial reporting. IT applications supporting the Caja's core banking operations are developed to comply with CMMI standards, designed to ensure IT systems function as intended, thus minimising the risk of introducing errors in financial reporting. Regarding business continuity, the abovementioned Caja Rural Group companies have a Systems Continuity Plan which, among other things, provides IT backup centres on separate sites which can replace the main centre in case of need. Index Annual Report 2011
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• Banco Cooperativa Español has a dedicated technology centre for SWIFT, treasury back office and private banking, and another alternative backup centre specifically for supporting treasury and capital markets, so that market operators and the control and support units for these activities can continue to function in the event of an emergency affecting the building now in use. • Rural de Servicios Informáticos SC, which supports core banking and accounting operations, has an alternative backup centre, synchronized through a system of daily backup copies, one saved on the host itself and the other in the alternative IT centre. The backups are checked regularly for comprehensiveness. Finally, Caja Rural de Navarra has a specific Business Continuity Plan, with alternative workstations identified with duplicate systems for other operations, and the possibility for those in key functions to work remotely with access to the Group's IT systems from designated locations over a secure connection. Caja Rural de Navarra has appropriate security protocols that include controlling access to each of the systems described. 7. Internal control policies and procedures for overseeing the management of outsourced activities, and of the appraisal, calculation or valuation services commissioned from independent experts, when these may materially affect the financial statements. The Caja regularly reviews which activities connected to financial reporting are subcontracted out and, where applicable, the Management Control Department puts in place control procedures to carry out sanity checks on information received. Caja Rural de Navarra uses independent third parties to provide certain valuations, calculations and estimates used in the preparation of the consolidated and separate financial statements provided to financial markets, such as asset appraisals, actuarial valuations, etc. At present, it has supervision and review procedures in place for activities outsourced to third parties, such as calculations or valuations by independent appraisers which are material to the process of financial reporting. These supervision procedures will be expressly reviewed to check their compliance with ICFR and brought into line with market best practice. The procedures cover the following areas: • Formal designation of those responsible for particular actions. • Pre-contract analysis, looking at alternative proposals. Index Annual Report 2011
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• Supervision and revision of information generated or services provided: o For subcontracted activities: requests for regular reports, inclusion in internal audit plans, mandatory external audit where applicable, regular review of the service provider's capacity and qualifications. o For valuations carried out by external appraisers: reviews of the correctness of the information provided, regular review of the appraiser's capacity and qualifications. The Caja reviews its estimates internally. Where it is deemed appropriate, the Caja brings in third parties for certain specific tasks, having checked their competence and independence, and that the methods they use are valid and any assumptions made are reasonable. 8. Procedures for reviewing and authorizing financial information and description of ICFR to be provided to the markets, stating who is responsible in each case. Caja Rural de Navarra prepares financial information for release to financial markets for all periods required by regulations in force and carries out the necessary controls to make sure published information is consistent with the Caja's consolidated and separate financial statements. The Audit Committee also has a role in the review process, reporting its conclusions on the financial information to the Governing Board. The rules of the Audit Committee list as one of its functions: • To supervise any financial information published and the financial statements for the year. Annual financial statements are audited and the external auditors issue an opinion and report directly to the Governing Board on the audit process.
INFORMATION AND COMMUNICATIONS 9. A specific function in charge of defining and maintaining accounting policies (accounting policies area or department) and settling doubts or disputes over their interpretation, which is in regular communication with the team in charge of operations. The Management Control Department is responsible for defining and maintaining the accounting policies applied to the Caja's transactions. New and amended standards are analysed by this department, which is responsible for giving instructions about how they should be implemented in the IT systems. Index Annual Report 2011
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10. A manual of accounting policies regularly updated and communicated to all the company's operating units. There is no complete manual of accounting policies as such. Instead the Caja's accounting polices follow Bank of Spain circulars (Circular 4/2004 as amended) and international financial reporting standards (IFRS-EU). However, the Management Control Department does have documentation setting out accounting policies for certain critical activities and procedures. At subsidiaries of Caja Rural de Navarra, the accounting guidelines and standards applied are determined by the Management Control Department based on standardized criteria and formats which facilitate the preparation of consolidated financial information. 11. Mechanisms in standard format for the capture and preparation of financial information, which are applied and used in all units within the entity or group, and support its main financial statements and accompanying notes as well as disclosures concerning ICFR. The process of consolidation and preparation of financial information is carried out centrally. IT applications are organized according to a management model structured around the requirements of a banking IT system. This structure includes different areas providing different types of services: - general IT systems that supply data to the area or unit heads. - management systems that provide business monitoring and control information. - operational systems, i.e. applications to cover the full life-cycle of products, contracts and customers. - structural systems, that support data shared by all applications and services? These systems include all systems related to accounting and economic data. A key objective of this model is to provide the infrastructure needed to run the software that manages all transactions and their subsequent accounting treatment and to allow access to the various types of support data. Based on this accounting infrastructure, processes are developed for the preparation, communication and storage of all regulatory financial reporting and internal accounting data, under the supervision of the Management Control Department. Index Annual Report 2011
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Financial information is consolidated and prepared through a centralized process run by the Management Control Department. Subsidiaries are responsible for their own account-keeping in the dedicated and all report accounting information in Spanish GAAP format. The consolidation process is very straightforward and is carried out quarterly using an office software programme. There are nevertheless procedures to control and verify the information to ensure that intragroup items are identified and eliminated in the consolidation process. Also, to ensure the information is accurate and complete, the consolidation software is programmed to make the adjustments to eliminate intragroup equity holdings and transactions, which is done automatically in accordance with the validation procedures defined in the system.
MONITORING OF SYSTEM OPERATIONS 12. If the Entity has an internal audit function whose competencies include supporting the audit committee in its role of monitoring the internal control system, including ICFR. Internal Audit functions are carried out by the Internal Audit Department of Caja Rural de Navarra which reports to the Audit Committee. The Audit Committee relies on the Internal Audit Department to monitor the Internal Control System and ICFR. Internal Audit reviews the risk management systems, internal operating procedures and compliance with internal and external regulations. 13. Indicate whether there is a discussion procedure whereby the auditor (pursuant to technical accounting standards), the internal audit function and other experts can report any significant internal control weaknesses encountered during their review of the financial statements or other assignments, to the company's senior management and its Audit Committee or board of directors. State also whether the entity has an action plan to correct or mitigate the weaknesses found. The auditor issues an annual report of recommendations which is presented to the Audit Committee. This sets out any weaknesses in the internal control procedures identified during the audit of the financial statements. The report is passed on to the units/areas concerned which are then responsible for proposing improvements to resolve the weaknesses identified. Index Annual Report 2011
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The rules of the Audit Committee include the following functions: • To propose the appointment of an external auditor for the Caja and Group subsidiaries, the terms of their engagement, the scope of their professional mandate and if applicable, its termination or non-renewal. • To supervise the internal audit function and monitor the work of the external auditors. • To review the final auditors' report, discussing, where necessary, any points that it considers appropriate, before these are made known to the Governing Board. • To oversee follow-up of recommendations made by internal and external audits. 14. A description of the scope of the ICFR assessment conducted in the year and the procedure for the person in charge to communicate its findings. State also whether the company has an action plan specifying corrective measures for any flaws detected, and whether it has taken stock of their potential impact on its financial information. The 2011 Audit Plan did not specifically include an ICFR assessment because the minimum regulatory requirements had not yet been defined at the time it was approved. However, the assessments carried out by the Internal Audit Department during the year did cover certain aspects of the process of financial reporting, mainly taking the form of reviews of accounting issues. The reports and documents produced as a result of these reviews show the recommendations for various improvements and the impact each would have on financial reporting. 15. Description of the Audit Committee's supervisory activities Internal Audit regularly presents to the Audit Committee the results of its verification and validation work, and the resulting action plans. Work done by the external auditor or other independent experts follow the same procedure. The minutes of the Audit Committee document the work done from its planning to the reviews of results obtained. Index Annual Report 2011
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16. Whether the ICFR information delivered to the markets has been reviewed by the external auditor. If it has, the Entity is to include the corresponding report. If it has not, the reasons for the absence of this review should be stated. Certain areas of ICFR are currently being formalized through an action plan. This is expected to be completed during 2012. For this reason, Caja Rural de Navarra decided not to submit its ICFR for review by the external auditor in 2011. In 2012, the Caja will consider whether it is appropriate to submit ICFR information provided to the markets for review by the external auditor.
OTHER MATTERS As of the date of issuance of this report, no post-balance sheet events which could modify or alter the Caja's equity position had occurred. Index
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Other Information Other Information Index Annual Report 2011
Other Information
Information on activities As established in its articles of In 2011, in accordance with criteria association, Caja Rural de Navarra approved at the General Meeting, a maintains and develops an extensive total of EUR 5,690.30 was appropriated portfolio of social projects benefitting a from the net surplus for 2010 and used growing number of community and to cover the cost of maintaining the welfare initiatives that reflect its origins Social Welfare Fund. This amount was and past achievements. applied as follows:
1.- Consultancy, training and promotion of the 1,427.85 25.09% cooperative model 2.- Teaching work and research 1,095.22 19.25% 3.- Sports aid 2,184.67 38.39% 4.- Welfare projects 128.20 2.25% 5. - Cultural, recreational and other activities 93.99 1.66% 6.-`Economic and social development 760.37 13.36% TOTAL 5,690.30 100% (Thousands of euros)
In each of the above areas, Caja The promotion and development of Rural de Navarra carries out cooperative structures - the Group's awareness-raising, training and own legal form and business structure research activities benefitting persons - generate a constant stream of of all ages. activities that, with the support of the Caja, help strengthen and improve As part of its work in the field of the cooperative entities, particularly consultancy, training and promotion those active in the primary sector, that of the cooperative model, the Caja represent its founding group. undertakes a broad range of activities designed to enhance the advisory services it provides to customers in relation to both tax issues and the management of EU aid.
It also provides valuable support to various professional organisations through a variety of initiatives that help improve the economic fabric of society. Index Annual Report 2011
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In its teaching work, the Caja accords particular importance to partnerships with university institutions and has entered into agreements with various academic centres located in its area of operation. These partnerships not only foster training, awareness-raising and research but also give students access to work experience schemes that supplement the academic training they receive in the universities.
The Caja's ongoing commitments in this area also include work to promote The Caja's portfolio of welfare projects environmental education in schools includes support for various not-for- as a means to raise awareness and profit and/or humanitarian foster the understanding that will organizations running projects and encourage increased respect for the initiatives benefitting the most natural environment in which we live disadvantaged members of society. among young people. A key field of action in this area is the provision of support and assistance for The Caja's broad and diverse portfolio the elderly that in one way or another of sports-related projects includes helps improve their quality of life. assistance in the organisation of numerous sporting events and As part of its cultural and recreational support for various clubs, programme, the Caja provides organisations and associations that funding for numerous community- work specifically to develop grass- based initiatives, aiming to reflect in roots sport. Many sporting disciplines its portfolio the huge diversity of benefit from this support, although the projects operated at the community Caja Rural Cycling Group is probably level and paying particular attention the most prominent and best-known to the various representations of of its sporting initiatives. popular culture and community empowerment that are organized in our immediate area. Index Annual Report 2011
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Employees, Branch and Regional Offices At the end of 2011 Caja Rural de Navarra had 906 employees and 243 branches, 103 of them located outside Navarre (37 in Guipuzcoa, 26 in Vizcaya, 24 in La Rioja and 16 in Alava).
Offices in Pamplona and surrounding area
DENOMINATION ADDRESS CITY TELEPHONE FAX ANSOAIN LAPURBIDE 2 ANSOAIN 948 143367 948 143367 BARAÑAIN PLZA. DE LOS CASTAÑOS, 4 BARAÑAIN 948 180368 948 185819 BARAÑAIN AVDA DE PAMPLONA, 4-6 BARAÑAIN 948 272705 948 272705 BARAÑAIN AVDA. CENTRAL, 12 BARAÑAIN 948 198457 948 198458 BERIÁIN PLAZA SIERRA DE IZAGA, 3 BERIÁIN 948 368443 948 368480 BERRIOZAR AVDA. GUIPÚZCOA, 30 BERRIOZAR 948 300361 948 300361 BURLADA CALLE MAYOR, 42 BURLADA 948 142662 948 142662 BURLADA JOSÉ MINA, 12 BURLADA 948 292273 948 292274 HUARTE PLAZA DE SAN JUAN 14 HUARTE - PAMPLONA 948 332390 948 332390 MUTILVA BAJA AVDA. PAMPLONA, 9 MUTILVA BAJA 948 857028 948 292551 NOAIN CALLE REAL 41 NOAIN 948 312717 948 312717 ORCOYEN PLAZA ITURGÁIN, 5 BIS ORCOYEN 948 343634 948 343635 PAMPLONA-OFICINA PRINCIPAL PLAZA DE LOS FUEROS, 1 PAMPLONA 948 168100 948 244557 PAMPLONA ARTICA, 11 PAMPLONA 948 127223 948 144287 PAMPLONA AVENIDA DE BARAÑAIN 17 PAMPLONA 948 177856 948 177238 PAMPLONA AVDA. CARLOS III, 12 PAMPLONA 948 203778 948 203779 PAMPLONA AVDA. MARCELO CELAYETA, 49 PAMPLONA 948 383992 948 383993 PAMPLONA AVDA. NAVARRA, 2 PAMPLONA 948 174864 948 170953 PAMPLONA CONCEJO DE EGÜES,10 PAMPLONA 948 162639 948 162639 PAMPLONA DOCTOR FLEMING, 13 PAMPLONA 948 136492 948 136493 PAMPLONA GAYARRE, 30 PAMPLONA 948 153734 948 153734 PAMPLONA CALLE IRUNLARREA 17 PAMPLONA 948 173071 948 173071 PAMPLONA ITURRAMA, 12 - 14 PAMPLONA 948 264612 948 277189 PAMPLONA LUIS MORONDO, 2 PAMPLONA 948 292441 948 292666 PAMPLONA MARTÍN AZPILICUETA, 2-4 PAMPLONA 948 198953 948 198954 PAMPLONA MAYOR, 6 PAMPLONA 948 211120 948 211120 PAMPLONA MERCADERES, 6 PAMPLONA 948 204080 948 204081 PAMPLONA MIRAVALLES, 17-19 PAMPLONA 948 144753 948 124238 PAMPLONA MONASTERIO DE URDAX, 34 PAMPLONA 948 173462 948 173462 PAMPLONA OLITE, 37 PAMPLONA 948 236683 948 236683 PAMPLONA PADRE BARACE, 1 PAMPLONA 948 198188 948 198194 PAMPLONA PAULINO CABALLERO, 27 PAMPLONA 948 153492 948 153492 PAMPLONA PASEO ANELIER, 20 (ESQUINA B. TIRAPU) PAMPLONA 948 382499 948 382500 PAMPLONA PINTOR CRISPIN, 2-4 PAMPLONA 948 262762 948 262762 PAMPLONA PÍO XII, 8 PAMPLONA 948 366755 948 198957 PAMPLONA RIO IRATI, 10 PAMPLONA 948 240862 948 237074 PAMPLONA SANTESTEBAN, 1 PAMPLONA 948 382579 948 382580 PAMPLONA TAJONAR 8 PAMPLONA 948 152852 948 152852 PAMPLONA TUDELA, 1 PAMPLONA 948 206798 948 207291 PAMPLONA VENTURA RODRÍGUEZ, 75 PAMPLONA 948 354163 948 354164 PAMPLONA VILLAFRANCA, 10 PAMPLONA 948 140982 948 140982 SARRIGUREN BARDENAS REALES, 7 SARRIGUREN 948 164128 948 168055 VILLAVA CALLE RICARDO BEL, 4 VILLAVA 948 123978 948 128063 ZIZUR MAYOR LURBELTZETA 4 ZIZUR MAYOR 948 185095 948 185095 ZIZUR MAYOR SANTA CRUZ, 25 ZIZUR MAYOR 948 182700 948 181887 Index Annual Report 2011
Other Information
Navarra
DENOMINATION ADDRESS CITY TELEPHONE FAX ABARZUZA PZ. DE LOS FUEROS, 9 ABARZUZA 948 520108 948 520108 ABLITAS AVDA DE TUDELA, 22 ABLITAS 948 813178 948 813178 AIBAR CTRA. SANGÜESA, 4 AIBAR 948 877531 948 877532 ALLO PLAZA FUEROS, 1 ALLO 948 523068 948 523068 ALSASUA ALZANIA, 2 ALSASUA 948 563858 948 563858 ANDOSILLA RONCESVALLES, 2 ANDOSILLA 948 674093 948 674093 AÑORBE PLAZA, SN AÑORBE 948 350163 948 350163 AÓIZ DOMINGO ELIZONDO, 4 AÓIZ 948 336888 948 336889 ARANTZA CL. MAYOR ARANTZA - ARANAZ 948 634051 948 634051 ARGUEDAS PLAZA GENERAL CLEMENTE 1 ARGUEDAS 948 830132 948 830132 ARIBE CL.SANTA MARIA ARIVE 948 764191 948 764191 ARRONIZ PRIMICIA 2 ARRONIZ 948 537352 948 537352 ARTAJONA HOSPITAL S/N ARTAJONA 948 364012 948 364838 AZAGRA AVENIDA DE LA PAZ, S/N AZAGRA 948 692039 948 692910 BARASOAIN DOCTOR NAVARRO, 6 BARASOAIN 948 720102 948 720102 BARGOTA BARRILILLA, 13 BARGOTA 948 648371 BERA CALLE BIDASOA 10 VERA DE BIDASOA 948 631112 948 631112 BERBINZANA CL. MAYOR, 23 BERBINZANA 948 722077 948 722077 BETELU CR. SAN SEBASTIAN BETELU 948 513065 948 513065 BUÑUEL PLAZA DE LOS FUEROS, 2 BUÑUEL 948 833126 948 833126 CABANILLAS LA VICERA, 6-8 CABANILLAS 948 810342 948 810342 CADREITA GENERAL FRANCO, 16 CADREITA 948 836233 948 836233 CAPARROSO GENERAL FRANCO, 4 CAPARROSO 948 730025 948 730025 CARCAR PLAZA ANA MARIA MOGAS, 4 CARCAR 948 674456 948 674456 CARCASTILLO CARRETERA AIBAR, SN CARCASTILLO 948 725557 948 725557 CASCANTE P OBISPO SOLDEVILLA, 7 CASCANTE 948 851772 948 850188 CASEDA CR. AIBAR-CAPARROSO 29 CASEDA 948 879208 948 879208 CASTEJON MERINDADES 14 CASTEJON 948 814313 948 814313 CINTRUENIGO RUA 7 CINTRUENIGO 948 811740 948 811740 CIRAUQUI NORTE CIRAUQUI 948 342088 948 342088 CORELLA SAN JOSE, 20 CORELLA 948 780366 948 401309 CORTES PZA DUQUESA DE MIRANDA, 5 CORTES 948 800034 948 800525 DANTXARINEA CASA ECHARTENEA DANCHARINEA 948 599253 948 599253 DICASTILLO PLAZA DE LOS FUEROS, SN DICASTILLO 948 527092 948 527092 ELIZONDO JAIME URRUTIA, 9 ELIZONDO 948 580729 948 580729 ERRO CR. FRANCIA ERRO 948 768068 948 768068 ESTELLA SAN ANDRES, 4 ESTELLA 948 550130 948 551912 ESTELLA AVDA. YERRI, 7 ESTELLA 948 555427 948 555428 ETXALAR ANDUZETA 4 ECHALAR 948 635201 948 635201 EULATE MAYOR, S/N EULATE 948 543841 948 543841 FALCES CABALLEROS 3 FALCES 948 734182 948 734182 FITERO MAYOR, 28 FITERO 948 776246 948 776246 FONTELLAS AVDA DE TUDELA, 9 FONTELLAS 948 827329 948 827329 FUNES AVENIDA DE NAVARRA 3 FUNES 948 754244 948 754244 FUSTIÑANA LUIS BEAUMONT 2 FUSTIÑANA 948 840535 948 840535 HUARTE ARAQUIL PLAZA SAN JUAN, SN HUARTE-ARAQUIL 948 464127 948 464127 Index Annual Report 2011
Other Information
Navarra
IRURZUN CALLE SAN MARTIN, 7 IRURZUN 948 500281 948 600429 JAURRIETA CL. LLANA S/N JAURRIETA 948 890326 948 890326 LARRAGA CARRETERA ESTELLA, SN LARRAGA 948 711233 948 711233 LARRÁINZAR SAN PEDRO, SN LARRAINZAR 948 305002 948 305002 LECUMBERRI ARALAR, 8 LECUMBERRI 948 504076 948 504076 LEIZA ELBARREN, 35 LEIZA 948 610735 948 610735 LERIN MAYOR, 33 LERIN 948 530267 948 530267 LESAKA BITTIRIA (CASA KUTHUNA) LESAKA 948 637318 948 637318 LODOSA AVENIDA DIPUTACION 4 LODOSA 948 693809 948 693809 LOS ARCOS RAMON Y CAJAL 8 LOS ARCOS 948 640224 948 640224 LUMBIER MAYOR, 70 LUMBIER 948 880177 948 880177 MARCILLA PASEO DE ARANJUEZ 3 MARCILLA 948 757327 948 757327 MELIDA PLAZA FUEROS S/N MELIDA 948 746377 948 746377 MENDAVIA AUGUSTO ECHEVARRIA, 51 MENDAVIA 948 685045 948 685045 MENDIGORRIA BERNARDINO AYALA, 6 MENDIGORRIA 948 340018 948 340018 MILAGRO VOLUNTARIOS DE NAVARRA 16 MILAGRO 948 409061 948 861663 MIRANDA DE ARGA BAJA, 3 MIRANDA DE ARGA 948 737005 948 737005 MONTEAGUDO AVDA. SAN AGUSTIN, 3 MONTEAGUDO 948 816621 948 816621 MURCHANTE MAYOR, 78 MURCHANTE 948 838151 948 838218 MURIETA CARRETERA ESTELLA-VITORIA, S/N MURIETA 948 534232 948 534232 MURILLO EL FRUTO MAYOR, 31 MURILLO EL FRUTO 948 725450 948 725450 OBANOS SAN LORENZO, 7 OBANOS 948 344477 948 344777 OCHAGAVIA IRIBARREN,32 OCHAGAVIA 948 890301 948 890301 OLAGÜE CL.SAN JUAN OLAGÜE 948 307111 948 307111 OLITE RUA MAYOR 4 OLITE 948 740258 948 740258 OTEIZA DE LA SOLANA CARRETERA ESTELLA, SN OTEIZA DE LA SOLANA 948 543139 948 543139 PERALTA IRURZUN, 11 PERALTA 948 750553 948 750781 PITILLAS SAN JOSE S/N PITILLAS 948 745101 948 745101 PUENTE LA REINA PASEO FRAY VICENTE DE BERNEDO 4 PUENTE LA REINA 948 340210 948 341123 RADA AVDA. NAVARRA, 15 RADA 948 731189 948 731189 RIBAFORADA CABALLEROS TEMPLARIOS, 1 RIBAFORADA 948 864117 948 819402 SAN ADRIAN CARRETERA ESTELLA, 63 SAN ADRIAN 948 670239 948 670239 SAN MARTIN DE UNX PLAZA MIGUEL SANZ, 5 SAN MARTIN DE UNX 948 738015 948 738015 SANGUESA PLAZA FUEROS, 7 SANGUESA 948 870653 948 870653 SANTACARA NTRA SRA DE UJUE SANTACARA 948 746107 948 746107 SANTESTEBAN PARROQUIA, 5 SANTESTEBAN 948 450404 948 451664 SARTAGUDA PABLO SARASATE, 26 SARTAGUDA 948 667102 948 667102 SESMA PADRE TOMAS ESTEBAN, 28 SESMA 948 698025 948 698025 SUNBILLA CL. LEKU EDER S/N SUNBILLA 948 450358 948 450358 TAFALLA PLAZA FUEROS, 2 TAFALLA 948 701511 948 701550 TAFALLA AVDA. BAJA NAVARRA, 1 TAFALLA 948 704622 948 704623 TUDELA MAULEON 1 ESQUINA J A FERNANDEZ TUDELA 948 412103 948 410852 TUDELA AVDA DE ZARAGOZA 1 TUDELA 948 822249 948 825704 TUDELA AVDA. AÑÓN BAIGORRI, 13 TUDELA 948 403273 948 403273 TUDELA DÍAZ BRAVO, 19 TUDELA 948 413581 948 413582 VALTIERRA PASEO DE LA RIBERA 91 VALTIERRA 948 867176 948 867300 VIANA LA SOLANA , S/N VIANA 948 645882 948 645882 VILLAFRANCA CRUCERO ANCHO 11 VILLAFRANCA 948 845106 948 845551 VILLATUERTA C/SAN GINES, 31 VILLATUERTA 948 541416 948 541416 ZUDAIRE CL. SAN ANTÓN S/N ZUDAIRE 948 539011 948 539011 Index Annual Report 2011
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Guipúzcoa
DENOMINATION ADDRESS CITY TELEPHONE FAX ANDOAIN JUAN BAUTISTA ERRO, 7 ANDOAIN 943 300883 943 300686 ARRASATE MAHALAKO ARRABALA, 6 ARRASATE 943 795343 943 795426 AZKOITIA NAGUSIA, 69 AZKOITIA 943 853032 943 857237 AZPEITIA FORUEN IBILBIDEA, 10 AZPEITIA 943 811195 943 811195 BEASAIN NAFARROA ETORBIDEA, 1 BEASAIN 943 805481 943 805747 BERGARA PO. IRIZAR, 5 BERGARA 943 769393 943 769293 EIBAR ERREBAL, 12 EIBAR 943 820755 943 820756 ELGOIBAR SAN FRANCISCO, 2 ELGOIBAR 943 747382 943 747383 HERNANI CL. TXIRRITA, 10 HERNANI 943 335920 943 335994 HONDARRIBIA JAVIER UGARTE, 6 HONDARRIBIA 943 640938 943 640484 IRUN FUENTERRABIA, 15 IRUN 943 610480 943 610480 IRUN JOAQUÍN GAMÓN, 2-4 IRUN 943 638723 943 638724 LASARTE NAGUSIA, 36 LASARTE 943 371844 943 371844 LEGAZPI KALE NAGUSIA (ESQUINA SANTIKUTZ) LEGAZPI 943 737098 943 737099 OIARTZUN SAN JUAN, 3 OIARTZUN 943 494264 943 494289 OÑATE FORUEN ENPARANTZA, 9 OÑATE 943 718867 943 718868 ORDIZIA GOEN, 6 ORDIZIA 943 805756 943 805767 PASAJES ANTXO GURE ZUMARDIA, 28 PASAJES ANTXO 943 340584 943 340838 RENTERIA PLAZA XENPELAR, 4 RENTERIA 943 519711 943 519711 RENTERIA-BERAUN AITA DONOSTI, 1 RENTERIA 943 344361 943 344362 SAN SEBASTIÁN AV. ISABEL II, 3 SAN SEBASTIÁN 943 458327 943 452666 SAN SEBASTIÁN CL. IPARRAGUIRRE 11 SAN SEBASTIÁN 943 297817 943 297818 SAN SEBASTIÁN AV. LARRATXO, 24 SAN SEBASTIÁN 943 404901 943 404902 SAN SEBASTIÁN MATÍA, 17 SAN SEBASTIÁN 943 224115 943 224126 SAN SEBASTIÁN J.M. SALABERRIA, 33-35 SAN SEBASTIÁN 943 445105 943 445106 SAN SEBASTIÁN SAN FRANCISCO, 34 SAN SEBASTIÁN 943 297716 943 297717 SAN SEBASTIÁN URBIETA, 16 SAN SEBASTIÁN 943 428500 943 433498 SAN SEBASTIÁN VIRGEN DEL CARMEN, 6 SAN SEBASTIÁN 943 297870 943 297871 SAN SEBASTIÁN-INTXAURRONDO PASEO SAGASTIEDER, 10 SAN SEBASTIÁN 943 596003 943 273316 TOLOSA AV. DE NAVARRA, 9 TOLOSA 943 698318 943 698236 TRINTXERPE AVDA. EUSKADI, 33-35 PASAI SAN PEDRO 943 404525 943 404526 URNIETA IDIAZÁBAL, 30 URNIETA 943 596004 943 332939 USÚRBIL ZUBIAURRENEA, 4 USÚRBIL 943 368842 943 368843 VILLABONA NUEVA, 43 VILLABONA 943 690780 943 690916 ZARAUTZ AZARA, 17 ZARAUZ 943 895514 943 895515 ZUMAIA ERRIBERA, 7 ZUMAIA 943 865628 943 865629 ZUMARRAGA LEGAZPI, 1 ZUMÁRRAGA 943 729337 943 729338
Álava
DENOMINATION ADDRESS CITY TELEPHONE FAX AMURRIO ELEXONDO, 10 AMURRIO 945 891768 945 891820
LLODIO AVDA. ZUMALACÁRREGUI, 38 LLODIO 94 6727881 94 6727882 VITORIA AVDA. GASTEIZ, 23 VITORIA 945 154045 945 154680 VITORIA AVDA. GASTEIZ, 80 VITORIA 945 215101 945 215102 VITORIA CL. LOS HERRAN 38 VITORIA 945 203477 945 203477 VITORIA CL. PARAGUAY, 8 VITORIA 945 214987 945 214988 VITORIA AVDA. SANTIAGO, 46 VITORIA 945 203220 945 203221 VITORIA PORTAL DE VILLARREAL, 34 VITORIA 945 123457 943 123458 VITORIA CORONACIÓN DE LA VIRGEN BLANCA, 11 VITORIA 945 215158 945 215159 VITORIA HERACLIO FOURNIER, 4 VITORIA 945 151113 945 151114 VITORIA JUNTAS GENERALES, 27 VITORIA 945 179456 945 179457 VITORIA BEATO TOMÁS DE ZUMÁRRAGA, 40 VITORIA 945 217194 945 217196 VITORIA DUQUE DE WELLINGTON, 12 VITORIA 945 197596 945 197597 VITORIA DIPUTACIÓN FORAL, 8 VITORIA 945 283933 945 262092 VITORIA C/ FRANCIA, 31 VITORIA 945 201645 945 201646 SANTA CRUZ DE CAMPEZO LA VILLA, 11 SANTA CRUZ DE CAMPEZO 945 415044 945 415044 Index Annual Report 2011
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Vizcaya
DENOMINATION ADDRESS CITY TELEPHONE FAX ALGORTA TORRENE, 8 ALGORTA 94 4912052 94 4913873 BARAKALDO GIPUZKOA, 6 BARAKALDO 94 4180560 94 4180561 BARAKALDO AVDA. LIBERTAD, 40 BARAKALDO 94 4180636 94 4180646 BASAURI AVDA. LEHENDAKARI AGIRRE, 78 BASAURI 94 4266495 94 4266496 BILBAO JUAN ANTONIO ZUNZUNEGUI, 1 BILBAO 94 4277480 94 4277214 BILBAO ITURRIAGA, 82 BILBAO 94 4597627 94 4597628 BILBAO SALOU, 2 BILBAO 94 4222868 94 4223182 BILBAO FRAY JUAN, 1 BILBAO 94 4396679 94 4396686 BILBAO ALAMEDA DE SAN MAMÉS, 6 BILBAO 94 4221323 94 4222236 BILBAO JUAN DE GARAY, 57 BILBAO 94 4104905 94 4210075 BILBAO SOMBRERERÍA, 6 BILBAO 94 4164765 94 4794324 BILBAO AVDA. LEHENDAKARI AGUIRRE, 13 BILBAO 94 4474282 94 4474283 BILBAO ERCILLA, 14 (Plaza Jado) BILBAO 94 4240338 94 4355715 BILBAO AUTONOMÍA, 35-ESQ. GORDÓNIZ BILBAO 94 4985020 94 4703772 BILBAO SAN VALENTÍN DE BERRIOTXOA, 7-ESQ. PZA. TRAUKO BILBAO 94 4985300 94 4134267 DERIO AVDA. MUNGIA, 1 DERIO 94 4544374 94 4540357 DURANGO ANDRA MARÍA KALEA, 4 DURANGO 94 6232871 94 6232872 ERANDIO OBIETA, 7 ERANDIO 94 4676546 94 4676547 ERMUA ERDIKOKALE ZEHARBIDE, 1 ERMUA 94 3597300 94 3175444 GALDAKAO MUGURU-ESQ. GANEKOGORTA GALDAKAO 94 4561720 94 4561722 MUNGIA CONCORDIA ALKARTASUNA, 4 MUNGUÍA 94 6748173 94 6748174 PORTUGALETE CARLOS VII, 2 PORTUGALETE 94 4830885 94 4937759 PORTUGALETE AVDA. REPÉLEGA, 15 PORTUGALETE 94 4957911 94 4956794 SANTURTZI AVDA. DE MURRIETA, 40 SANTURTZI 94 4934187 94 4934189 SESTAO ALAMEDA DE LAS LLANAS, 7 SESTAO 94 4960524 94 4960625 TRAPAGARÁN PRIMERO DE MAYO, 26 BIS TRAPAGARÁN 94 4862302 94 4920674
La Rioja
DENOMINATION ADDRESS CITY TELEPHONE FAX ALDEANUEVA DE EBRO LOMBILLA, 1 ALDEANUEVA DE EBRO (LA RIOJA) 941 163613 941 163613 ALFARO PUERTA DE TUDELA, 3 ALFARO (LA RIOJA) 941 180512 941 180512 ARNEDO HUERTAS, 1 ARNEDO 941 385074 941 385075 AUTOL Nª SRA. DE YERGA, 14 AUTOL 941 390925 941 390926 CALAHORRA CAVAS, 1 CALAHORRA (LA RIOJA) 941 146240 941 146720 CALAHORRA RAMÓN SUBIRÁN, 29 CALAHORRA (LA RIOJA) 941 136088 941 136089 HARO AVDA. LA RIOJA, 2 HARO 941 304997 941 304998 LARDERO BRETÓN DE LOS HERREROS, 1 LARDERO 941 447844 941 447844 LOGROÑO AV. DE LA PAZ, 28 LOGROÑO 941 270984 941 270985 LOGROÑO AV. DE LA PAZ, 71 LOGROÑO 941 270369 941 270369 LOGROÑO CHILE, 18 LOGROÑO 941 286792 941 286793 LOGROÑO ESTAMBRERA, 14 LOGROÑO 941 501299 941 501299 LOGROÑO GENERAL VARA DE REY, 44 LOGROÑO 941 234670 941 234671 LOGROÑO GONZALO DE BERCEO, 14 LOGROÑO 941 287332 941 287333 LOGROÑO GRAN VIA, 16 LOGROÑO 941 287444 941 287445 LOGROÑO JORGE VIGÓN, 40 LOGROÑO 941 270987 941 270988 LOGROÑO SIETE INFANTES DE LARA 11 LOGROÑO 941 519050 941 519051 NÁJERA SAN FERNANDO, 56 NÁJERA 941 361775 941 361775 NAVARRETE AVDA. LOGROÑO, 4 NAVARRETE 941 440783 941 440663 PRADEJÓN DEL PRADO, 20 BIS PRADEJÓN 941 141446 941 141447 QUEL AVDA. LA RIOJA, 57 QUEL 941 403331 941 403341 RINCON DE SOTO PRINCIPE FELIPE, 18 RINCON DE SOTO (RIOJA) 941 142063 941 142063 SANTO DOMINGO DE LA CALZADA JUAN CARLOS I, 5 SANTO DOMINGO DE LA CALZADA 941 343073 941 343412 VILLAMEDIANA DE IREGUA AVDA. CAMEROS, 6 VILLAMEDIANA DE IREGUA 941 435900 941 435900 Index