UNITED STATES  

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of July, 2019

 

Commission File Number: 000-55899

 

BANCO SANTANDER MÉXICO, S.A., INSTITUCIÓN DE BANCA MÚLTIPLE, GRUPO FINANCIERO SANTANDER MÉXICO

(Exact Name of Registrant as Specified in Its Charter)

 

Avenida Prolongación Paseo de la Reforma 500

Colonia Lomas de Santa Fe

Delegación Álvaro Obregón

01219, Ciudad de México

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

 

Form 20-F

X

  Form 40-F

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Yes   No

X

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes   No

X

 

 

 

 

 

BANCO SANTANDER MÉXICO, S.A., INSTITUCIÓN DE BANCA MÚLTIPLE, GRUPO FINANCIERO SANTANDER MÉXICO

 

TABLE OF CONTENTS

 

ITEM  
1. Reconciliation of Unaudited Condensed Consolidated Interim Financial Statements as of June 30, 2019 and as of December 31, 2018 and for the six months ended June 30, 2019 and 2018 of Banco Santander México, S.A., Institución De Banca Múltiple, Grupo Financiero Santander México and its Subsidiaries prepared in accordance with Mexican GAAP to IFRS.
2. Unaudited Condensed Consolidated Interim Financial Statements as of June 30, 2019 and as of December 31, 2018 and for the six months ended June 30, 2019 and 2018 of Banco Santander México, S.A., Institución De Banca Múltiple, Grupo Financiero Santander México and its Subsidiaries prepared in accordance with Mexican GAAP.

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

BANCO SANTANDER MÉXICO, S.A., INSTITUCIÓN DE BANCA MÚLTIPLE, GRUPO FINANCIERO SANTANDER MÉXICO

 

   
   
    By: /s/ Hector Chávez Lopez
      Name: Hector Chávez Lopez
      Title: Executive Director of Investor Relations

Date: July 25, 2019

 

 

 

Item 1

 

Banco Santander México, S.A. and Subsidiaries

 

The consolidated financial statements of Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México (together with its subsidiaries, the “Bank”) filed for Mexican statutory purposes are prepared in accordance with accounting principles and regulations prescribed by the Mexican Banking and Securities Commission ( Comisión Nacional Bancaria y de Valores , or “CNBV”), as amended, which are hereinafter referred to as Mexican Banking GAAP. Mexican Banking GAAP is composed of Mexican Financial Reporting Standards ( “NIF” by its Spanish acronym), as issued by the Mexican Board of Financial Reporting Standards (“CINIF”), which, in turn, are supplemented and modified by specific rules mandated by the CNBV. The CNBV’s accounting rules principally relate to the recognition and measurement of impairment of loans and receivables, sale and repurchase agreements, securities loans, consolidation of special purpose entities and foreclosed assets.

 

The most significant differences between Mexican Banking GAAP and International Financial Reporting Standards (“IFRS”), as they relate to the Bank, are reconciled and described below:

 

Reconciliation of Net income for the semester ended June 30, 2019

 

Amounts in millions of Mexican pesos, net of Income Tax effect

 

Net income under Mexican Banking GAAP   10,899
     
IFRS adjustments:    
     
Deferred employee profit sharing (a) (2)
Pension and post-employment benefits (b) (36)
Allowance for impairment losses and provision for    
   off-balance sheet risk (c) 132
Impairment losses from non-current assets held for    
   sale (d) (25)
Fair value measurements and Reserve for Special    
   Federal Treasury Securities (e) (232)
Loan portfolio indexed to the minimum salary (f) 92
Other adjustments (g) (102)
     
Profit under IFRS   10,726
     
Non-controlling interest   -           
     
Profit attributable to the Parent under IFRS   10,726
     

 

 

Reconciliation of Total equity as of June 30, 2019

 

Amounts in millions of Mexican pesos, net of Income Tax effect

 

Total Stockholders’ equity under Mexican Banking GAAP  

133,829

 

     
IFRS adjustments:    
     
Deferred employee profit sharing (a) (2,616)
Pension and post-employment benefits (b) (1,029)
Allowance for impairment losses and provision for    
   off-balance sheet risk (c) (846)
Impairment losses from non-current assets held for    
   sale (d) 673
Fair value measurements and Reserve for Special    
   Federal Treasury Securities (e) 861
Loan portfolio indexed to the minimum salary (f) 92
Other adjustments (g) (130)
     
Total equity under IFRS   130,834

 

Reconciliation of Cash and cash equivalents as of June 30, 2019

 

Amounts in millions of Mexican pesos

 

Cash and cash equivalents or Funds available under Mexican Banking GAAP  

73,192

 

     
IFRS adjustments:    
     
Loans and advances to credit institutions (h) (20,869)
Loans and advances to customers (h) (67)
Trading derivatives (h) (1,033)
     
Total Cash and cash equivalents under IFRS   51,223
     

A description of the IFRS adjustments is presented below:

 

a) Deferred employee profit sharing

 

Mexican Banking GAAP requires the recognition of the deferred compulsory employee profit sharing effect based on the temporary differences arising between book and tax value of the assets and liabilities, while IFRS does not considers this deferred employee profit sharing as an income tax temporary difference.

 

b) Pension and post-employment benefits

 

Adjustments were made to recognize the effects of the first-time IFRS adoption exemption taken in which all unrecognized actuarial gains and losses related to pension and post-employment benefits were recognized on January 1, 2010.

 

 

 

For Mexican Banking GAAP purposes, the net pension liability represents the present value of the defined benefit obligation, plus (minus) the unrecognized actuarial gains or losses of the pension plan, while IFRS requires that the net pension liability reflects the full value of the underfunded status of the pension plan.

 

IFRS requires the immediate recognition of actuarial gains and losses of the year in other comprehensive income without subsequent recycling to profit or loss. Under Mexican Banking GAAP, there is an option to recognize actuarial gains and losses from the year:

 

1) in other comprehensive income as remeasurement of defined benefit obligation and demand their subsequent recycling to profit or loss based on the average remaining life of the pension plan, or

 

2) immediately to profit or loss of the period in which were determined.

 

c) Allowance for impairment losses and provision for off-balance sheet risk

 

For IFRS purposes, the Bank assesses on a forward-looking basis the expected credit losses associated with its financial assets carried at amortized cost and at fair value through other comprehensive income. The impairment methodology applied depends on whether there has been a significant increase in credit risk; once the Bank has classified its financial assets according to its credit risk, they are individually or collectively assessed for impairment in order to recognize the allowance for impairment losses arising from credit risk. The expected credit losses model is based on changes in credit quality since initial recognition and considers the following stages:

 

▪ Stage 1 (12-month expected credit losses): This stage includes financial assets that have not had a significant increase in credit risk.

 

▪ Stage 2 (Lifetime expected credit losses): This stage includes financial assets that have had a significant increase in credit risk since initial recognition but that do not have objective evidence of impairment. Interest revenue is still calculated on the gross carrying amount of the asset.

 

▪ Stage 3 (Lifetime expected credit losses): This stage includes financial assets that have objective evidence of impairment at the reporting date. Interest revenue is calculated on the net carrying amount (net of allowance for impairment losses).

 

Such IFRS criteria differ from the related criteria for Mexican Banking GAAP under which impairment losses and provision for off-balance sheet risk are determined using prescribed formulas that are based primarily on an expected credit losses model. The expected credit losses model formulas are developed by the CNBV using credit losses information compiled from the Mexican lending market as a whole, which may differ significantly from the Bank’s credit loss experience. In some cases, CNBV can approve the use of internal models to determine the allowance for impairment losses under Mexican Banking GAAP, as an alternative to the regulatory expected credit losses model.

 

d) Impairment losses of non-current assets held for sale

 

Under Mexican Banking GAAP, impairment losses from non-current assets held for sale are determined based on formulas prescribed by the CNBV. For IFRS purposes, the Bank determines an estimation based upon the comparison between the fair value less costs to sell and the carrying value of the non-current assets held for sale.

 

 

 

e) Fair value measurements and Reserve for Special Federal Treasury Securities

 

For Mexican Banking GAAP, the fair value measurement of over-the-counter (“OTC”) derivatives does not consider the counterparty credit risk or the Bank’s own credit risk. For IFRS purposes, the counterparty credit risk and the Bank’s own credit risk is factored into the fair value measurements of OTC derivatives.

 

Due to the lack of trading volume for certain financial instruments, the quoted market prices of such instruments may not have deemed to be sufficiently current for purposes of measuring fair value under IFRS. The adjustments were applicable to 28-day Interbank Equilibrium Interest Rate ( Tasa de Interés Interbancaria de Equilibrio , or “TIIE”) future contracts traded in the Mexican Derivatives Exchange (“MexDer”). The Mexican Banking GAAP fair values of these financial instruments are the unadjusted quoted market prices (MexDer prices).

 

This adjustment also includes the reversal of a reserve for the probable future decrease in value of Special Federal Treasury Securities (“Special CETES”) that was created by the Bank permitted by the CNBV for Mexican Banking GAAP purposes. The Reserve for Special CETES does not meet the recognition criteria under IFRS.

 

f) Loan portfolio indexed to minimum salary

 

For Mexican Banking GAAP, the balance of the loan portfolio indexed to the minimum salary is adjusted by the current minimum salary rate recognizing an increase in its balance and a deferred credit balance, which will be recognized in profit or loss in a twelve-month period as interest income. Under IFRS, the aforementioned effect is recognized immediately in profit or loss of the period as a gain on financial assets.

 

g) Other adjustments

 

Mainly, it considers the effect under IFRS, since the entry of the lease standard IFRS 16, on January 1, 2019, in which a lessee recognizes a right-of-use asset and a lease liability for each of its   leases, with the exemption of leases under 12 months (short term) and leases for which the underlying asset is considered of low value. Subsequently, a lessee must recognize an interest expense and a decrease in the lease liability for lease payments made to the lessor, as well as a straight-line depreciation charge associated with the right-of-use asset.

 

For the Mexican Banking GAAP, changes in lease accounting in accordance with the new standard under NIF (which converges with IFRS) have not yet been adopted. Therefore, a lessee continues classifying each of its leases between operating and finance leases:

 

· Operating leases: an expense is recognized on a straight-line basis for lease payments throughout the lease term.

 

· Finance leases: the underlying asset in PP&E and a lease liability are recognized. The underlying asset will be reduced through accumulated depreciation and the lease liability, which accrues interest expenses, is decreased through lease payments.

 

h) Cash and cash equivalents

 

For Mexican Banking GAAP, “Cash and cash equivalents” or “Funds available” include some items that are mandatory to be presented in this line of the balance sheet but do not comply with the definition of “Cash and cash equivalents” under IFRS.

 

 

 

 

Item 2

 

 

 

 

 

Banco Santander México, S. A., Institución de Banca Múltiple

 

Grupo Financiero Santander México and Subsidiaries

 

Unaudited Condensed Consolidated Interim Financial Statements

 

as of June 30, 2019 and as of December 31, 2018 and

 

for the six-month periods ended June 30, 2019 and 2018

 

 

 

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Unaudited Condensed Consolidated Interim Financial Statements

as of June 30, 2019 and as of December 31, 2018 and

for the semesters ended June 30, 2019 and 2018

 

 

 

Table of contents Page
   
Unaudited condensed consolidated Balance Sheets 1
   
Unaudited condensed consolidated Statements of Income 3
   
Unaudited condensed consolidated Statements of Changes in Stockholders’ Equity 4
   
Unaudited condensed consolidated Statements of Cash Flows 5
   
Notes to the unaudited condensed consolidated interim financial statements 6 to 45

 

 

 

 

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

 

 

In millions of Mexican pesos

 

  June 30,   December 31,
Assets   2019   2018
         
Funds available   $ 73,192     $ 70,151  
                 
Margin accounts     3,826       3,689  
                 
Investment in securities:                
Trading securities     94,763       111,891  
Securities available for sale     176,435       195,063  
Securities held to maturity     10,980       10,827  
                 
      282,178       317,781  
                 
Debtors under sale and repurchase agreements     67,889       37,881  
                 
Derivatives:                
Trading purposes     139,902       155,299  
Hedging purposes     7,186       7,592  
                 
      147,088       162,891  
                 
Valuation adjustment for hedged financial assets     152       6  
                 
Performing loan portfolio:                
Commercial loans                
  Commercial or business activity loans     360,269       344,942  
  Financial entities loans     12,430       20,221  
  Government entities loans     61,739       59,547  
                 
      434,438       424,710  
                 
Consumer loans     110,226       106,576  
Mortgage loans                
Medium and residential     126,003       120,559  
Social interest     42       55  
Loans acquired from INFONAVIT and FOVISSSTE     13,989       14,861  
                 
      140,034       135,475  
                 
Total performing loan portfolio     684,698       666,761  
                 
Non-performing loan portfolio:                
Commercial loans                
  Commercial or business activity loans     5,545       5,645  
  Financial entities loans     -       7  
                 
      5,545       5,652  
                 
Consumer loans     4,469       4,261  
Mortgage loans                
Medium and residential     4,094       4,917  
Social interest     5       12  
Loans acquired from INFONAVIT and FOVISSSTE     1,518       1,245  
                 
      5,617       6,174  
                 
Total non-performing loan portfolio     15,631       16,087  
                 
Total loan portfolio     700,329       682,848  

 

 

  June 30,   December 31,
Liabilities and Stockholders’ equity   2019   2018
         
Deposits:        
Demand deposits   $ 458,126     $ 455,045  
Time deposits                
Customer deposits     207,018       178,978  
Money market     54,543       58,288  
                 
      261,561       237,266  
                 
Credit instruments issued     54,718       44,725  
Global deposits account without movements     1,601       1,501  
                 
      776,006       738,537  
                 
                 
Bank and other loans:                
Demand loans     22,305       9,990  
Short-term loans     17,816       19,084  
Long-term loans     27,968       28,009  
                 
      68,089       57,083  
                 
Creditors under sale and repurchase agreements     84,668       100,689  
                 
Securities loans     1       1  
                 
Collateral sold or pledged as guarantee:                
Sale and repurchase agreements     118       2,301  
Securities loans     21,093       28,238  
                 
      21,211       30,539  
                 
                 
Derivatives:                
Trading purposes     136,778       154,830  
Hedging purposes     8,088       8,376  
                 
      144,866       163,206  
                 
Valuation adjustment for hedged financial liabilities     (12 )     (24 )
                 
Other payables:                
Income taxes payable     22       42  
Employee profit sharing payable     184       318  
Creditors from settlement of transactions     41,499       48,620  
Creditors from margin accounts     532       411  
Creditors from collaterals received in cash     22,924       42,480  
Sundry creditors and other payables     39,094       36,447  
                 
      104,255       128,318  
                 
Subordinated liabilities     34,886       37,228  
                 
Deferred revenues and other advances     388       300  
                 
Total liabilities     1,234,358       1,255,877  

 

 

 

Page  1

 

Assets

 

(-) Less:        
Allowance for loan losses     (21,345 )     (21,100 )
                 
Loan portfolio (net)     678,984       661,748  
                 
Accrued income receivable from securitization transactions     84       127  
                 
Other receivables (net)     77,945       89,089  
                 
Foreclosed assets (net)     232       270  
                 
Property, furniture and fixtures (net)     9,054       8,714  
                 
Long-term investment in shares     90       91  
                 
Deferred income taxes and employee statutory profit sharing (net)     18,901       20,418  
                 
Other assets:                
Deferred charges, advance payments and intangibles     8,536       8,679  
Other     36       35  
                 
      8,572       8,714  
                 
Total assets   $ 1,368,187     $ 1,381,570  

 

 

Stockholders’ equity

 

Paid-in capital:        
Capital stock     29,799       29,799  
Share premium     5,162       4,963  
                 
      34,961       34,762  
                 
Other capital:                
Capital reserves     23,845       22,315  
Retained earnings     63,365       50,451  
Result from valuation of available for sale securities     667       (1,440 )
Result from valuation of cash flow hedge instruments     (221 )     (261 )
Cumulative translation effect     9       9  
Remeasurement of defined benefit obligation     272       241  
Net income     10,899       19,584  
                 
      98,836       90,899  
                 
Non-controlling interest     32       32  
                 
Total stockholders’ equity     133,829       125,693  
                 
                 
Total liabilities and stockholders’ equity   $ 1,368,187     $ 1,381,570  

 

 

 

    June 30,   December 31,
Memorandum accounts   2019   2018
         
Contingent assets and liabilities   $ 46     $ 69  
Credit commitments     214,277       238,273  
Assets in trust or mandate:                
  Trusts     177,240       173,443  
  Mandates     2,101       1,163  
Assets in custody or under administration     2,058,218       2,197,358  
Collateral received     141,731       141,168  
Collateral received and sold or pledged as guarantee     49,536       74,274  
Investment banking transactions on behalf of third parties (net)     111,475       10,149  
Uncollected interest earned on past due loan portfolio     859       937  
Other accounts     1,686,189       1,647,744  
                 
    $ 4,441,672     $ 4,484,578  

 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

 

Page  2

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Unaudited Condensed Consolidated Statements of Income

 

 

In millions of Mexican pesos

 

    For the six-month periods
    ended June 30,
         
    2019   2018
                 
Interest income   $ 61,329     $ 53,505  
Interest expense     (28,292 )     (24,095 )
                 
Financial margin     33,037       29,410  
                 
Provisions for loan losses     (8,772 )     (9,613 )
                 
Financial margin after provisions for loan losses     24,265       19,797  
                 
Commission and fee income     12,502       11,539  
Commission and fee expense     (3,379 )     (3,208 )
Net gain on financial assets and liabilities     896       1,337  
Other operating income (net)     (991 )     436  
Administrative and promotional expenses     (18,738 )     (17,063 )
                 
Total operating income     14,555       12,838  
                 
Results of other long-term investment in shares     -       -  
                 
Income before income taxes     14,555       12,838  
                 
Current income taxes     (3,033 )     (2,323 )
Deferred income taxes (net)     (623 )     (617 )
                 
Result before non-controlling interest     10,899       9,898  
                 
Non-controlling interest     -       -  
                 
Net income   $ 10,899     $ 9,898  

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

 

 

Page  3

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity

 

 

 

    Paid-in Capital   Other Capital            
                            Result from   Result from                    
    Capital stock               valuation of   valuation of       Remeasurement            
                            securities   cash flow   Cumulative   of defined       Non-   Total
                Share   Capital   Retained   available   hedge   translation   benefit   Net   controlling   stockholders’
    Historical   Restated   Total   premium   reserves   earnings   for sale   instruments   effect   obligation   income   interest   equity
                                                     
Balances as of January 1, 2018   $ 8,086     $ 3,262     $ 11,348     $ 23,450     $ 9,515     $ 55,205     $ (1,353 )   $ 321     $ 9     $ 35     $ 17,645     $ 30     $ 116,205  
                                                                                                         
Entries arising from decisions approved by stockholders-                                                                                                        
Transfer of prior year net income     -       -       -       -       -       17,645       -       -       -       -       (17,645 )     -       -  
Capitalization of share premium     17,574       877       18,451       (18,451 )     -       -       -       -       -       -       -       -       -.  
Dividends declared     -       -       -       -       -       (4,279 )     -       -       -       -       -       -       (4,279 ).
                                                                                                         
                                                                                                         
Total entries arising from decisions approved by stockholders     17,574       877       18,451       (18,451 )     -       13,366       -       -       -       -       (17,645 )     -       (4,279 )
                                                                                                         
Entries inherent to comprehensive income-                                                                                                        
Result from valuation of available for sale securities     -       -       -       -       -       -       179       -       -       -       -       -       179  
Result from valuation of cash flow hedge instruments     -       -       -       -       -       -       -       (280 )     -       -       -       -       (280 )
Own shares repurchase fund     -       -       -       -       12,800       (12,800 )     -       -       -       -       -       -        -  
Recognition of equity-settled share-based payments     -       -       -       784       -       (41 )     -       -       -       -       -       -       743  
Treasury shares     -       -       -       (291 )     -       -       -       -       -       -       -       -       (291 )
Paid interests on Subordinated Additional                                                                                                        
Tier I Capital Notes     -       -       -       -       -       (292 )     -       -       -       -       -       -       (292 )
Effect on sale of the Custody business     -       -       -       -       -       595       -       -       -       -       -       -       595  
Effect on acquisition of subsidiary     -       -       -       -       -       (19 )     -       -       -       -       -       -       (19 )
Remeasurement of defined benefit obligation     -       -       -       -       -       -       -       -       -       56       -       -       56  
Net income     -       -       -       -       -       -       -       -       -       -       9,898       -       9,898  
Non-controlling interest     -       -       -       -       -       -       -       -       -       -       -       5       5  
                                                                                                         
Total comprehensive result     -       -       -       493       12,800       (12,557 )     179       (280 )     -       56       9,898       5       10,594  
                                                                                                         
Balances as of June 30, 2018   $ 25,660     $ 4,139     $ 29,799     $ 5,492     $ 22,315     $ 56,014     $ (1,174 )   $ 41     $ 9     $ 91     $ 9,898     $ 35     $ 122,520  
                                                                                                         
Balances as of January 1, 2019   $ 25,660     $ 4,139     $ 29,799     $ 4,963     $ 22,315     $ 50,451     $ (1,440 )   $ (261 )   $ 9     $ 241     $ 19,584     $ 32     $ 125,693  
                                                                                                         
Entries arising from decisions approved by stockholders-                                                                                                        
Transfer of prior year net income     -       -       -       -       1,530       18,054       -       -       -       -       (19,584 )     -       -.  
Dividends declared     -       -       -       -       -       (4,843 )     -       -       -       -       -       -       (4,843 ).
                                                                                                         
Total entries arising from decisions approved by stockholders     -       -       -       -       1,530       13,211       -       -       -       -       (19,584 )     -       (4,843 )
                                                                                                         
Entries inherent to comprehensive income-                                                                                                        
Result from valuation of available for sale securities     -       -       -       -       -       -       2,107       -       -       -       -       -       2,107  
Result from valuation of cash flow hedge instruments     -       -       -       -       -       -       -       40       -       -       -       -       40  
Recognition of equity-settled share-based payments     -       -       -       100       -       -       -       -       -       -       -       -       100  
Treasury shares     -       -       -       99       -       -       -       -       -       -       -       -       99  
Paid interests on Subordinated Additional                                                                                                        
Tier I Capital Notes     -       -       -       -       -       (297 )     -       -       -       -       -       -       (297 )
Remeasurement of defined benefit obligation     -       -       -       -       -       -       -       -       -       31       -       -       31  
Net income     -       -       -       -       -       -       -       -       -       -       10,899       -       10,899  
                                                                                                         
Total comprehensive result     -       -       -       199       -       (297 )     2,107       40       -       31       10,899       -       12,979  
                                                                                                         
Balances as of June 30, 2019   $ 25,660     $ 4,139     $ 29,799     $ 5,162     $ 23,845     $ 63,365     $ 667     $ (221 )   $ 9     $ 272     $ 10,899     $ 32     $ 133,829  

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

 

Page  4

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

 

 

In millions of Mexican pesos

 

    For the six-month periods
    ended June 30,
         
      2019       2018  
                 
Net income   $ 10,899     $ 9,898  
                 
Adjustment for line items that do not require cash flows-                
Result from valuation associated to operating activities     1,443       (1,721 )
Depreciation of property, furniture and fixtures     642       534  
Amortization of intangible assets     1,184       899  
Current and deferred income taxes     3,656       2,940  
Provisions     202       362  
Share-based payments     100       784  
Deferred employee profit sharing     (2 )     -  
Amortization of transaction costs from debt issuance     8       7  
                 
      18,132       13,703  
Operating activities                
                 
Net (increase) / decrease:                
Margin accounts     (137 )     (1,059 )
Investment in securities     37,779       33,220  
Debtors under sale and repurchase agreements     (30,008 )     (39,285 )
Derivatives (asset)     15,431       6,234  
Loan portfolio (net)     (17,407 )     (34,505 )
Accrued income receivable from securitization transactions     43       (2 )
Foreclosed assets     38       140  
Other operating assets     11,840       3,767  
Deposits     37,708       53,868  
Bank and other loans     11,006       618  
Creditors under sale and repurchase agreements     (16,021 )     (16,063 )
Collateral sold or pledged as guarantee     (9,328 )     10,360  
Derivatives (liability)     (17,338 )     (12,839 )
Issuance of subordinated liabilities     (1,477 )     -  
Other operating liabilities     (24,120 )     18,828  
Payments of income taxes     (3,938 )     (3,890 )
                 
Net cash provided by operating activities     12,203       33,095  
                 
Investing activities                
                 
Proceeds from disposal of property, furniture and fixtures     5       5  
Payments for acquisition of property, furniture and fixtures     (982 )     (465 )
Payments for acquisition of intangible assets     (867 )     (1,058 )
Proceeds from sale of shares by corporate restructure     -       1,175  
Payment for subsidiary acquisition     -       (1,020 )
Proceeds for sale of custody business     -       764  
                 
Net cash used in investing activities     (1,844 )     (599 )
                 
Financing activities                
                 
Cash payment of dividends     (4,843 )     (6,101 )
Purchase of own shares     99       (291 )
Paid interests on Subordinated Additional Tier I Capital Notes     (297 )     (292 )
                 
Net cash used in financing activities     (5,041 )     (6,684 )
                 
Net increase (decrease) in funds available     5,318       25,812  
                 
Adjustment to funds available for changes in exchange rate     (2,277 )     1,757  
                 
Funds available at the beginning of the period     70,151       87,409  
                 
Funds available at the end of the period   $ 73,192     $ 114,978  

 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

 

Page  5

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

Amounts in millions of Mexican pesos

 

Note 1 - Activity and economic and regulatory environment

 

Banco Santander México, S. A., Institución de Banca Múltiple, Grupo Financiero Santander México (the “Bank”) is a subsidiary of Grupo Financiero Santander México, S.A. de C.V. (the “Financial Group”), which holds 99.99% of its common stock, which is a subsidiary of Banco Santander, S.A. in Spain (Banco Santander, S.A. (Spain)). The Bank and its subsidiaries (the “Institution”) is regulated by, among others, the Credit Institutions Law and the General Provisions issued by the Mexican National Banking and Securities Commission (the “Commission”) and Banco de México (the “Central Bank”). The Institution’s corporate purpose is to render banking and credit services under the terms of applicable laws, which include, among others, reception of deposits, acceptance of loans, granting of loans, trading of securities and the execution of trust contracts.

 

During the six-month period ended June 30, 2019, the macroeconomic indicators have been stable, with inflation of 0.27%, estimated GDP annual growth of 1.13% and appreciation of the Mexican peso with respect to the U.S. dollar of 2.25%.

 

Significant events during the period

 

a) Issuance of debt instruments

 

On April 8, 2019, the Bank issued certificates of deposits with the following characteristics: i) $2,300 with a 1,092-day maturity that will bear interest at an interest rate of 28 day Interbank Equilibrium Interest Rate (Tasa de Interés Interbancaria de Equilibrio, or TIIE) plus 0.10 % (interest will be paid every 28 days) stock symbole BSMX 19 and ii) $4,600 with a 2,548-day maturity that will bear interest at an interest rate of 8.95% (interest will be paid every 182 days) stock symbole BSMX 19-2.

 

On June 17, 2019, the Bank issued additional certificates of deposits related to the aforementioned issuances (BSMX 19 and BSMX 19-2) with the following characteristics: i) $550 with a 1,022-day maturity and ii) $2,550 with a 2,478-day maturity, respectively. There were no change in the interest rates and frequency of payment.

 

b) Exchange offer

 

Banco Santander, S.A. (Spain) announced its intention of making a public acquisition offer to acquire up to approximately 25% of the shares of the Bank, which are owned by investors other than Banco Santander, S.A. (Spain). The investors which accept the offering will obtain 0.337 of shares of Banco Santander, S.A. (Spain) for each share of the Bank and 1,685 American Depositary Shares (ADS) of Banco Santander, S.A. (Spain) for each ADS of the Bank. It is expected to make the offering and settle the exchange of shares during the second half-year of 2019.

 

No additional significant events occurred from July 1, 2019 until these unaudited condensed consolidated interim financial statements were authorized for issue.

 

Note 2 - Basis of presentation of the unaudited condensed consolidated interim financial statements

 

These unaudited condensed consolidated interim financial statements were prepared and are presented in accordance with the Accounting Criteria established by the Commission, which incorporate on a supplemental basis, the accounting and reporting requirements set forth in the Mexican Financial Reporting Standard (“MFRS” or “NIF” by

 

Page  6

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

its Spanish acronym), B-9, Interim Financial Information (“NIF B-9”) as issued by the Mexican Board of Financial Reporting Standards (“CINIF”). The results of the six-month periods are not necessarily indicative of the results for the full year. These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited financial statements of the Institution and the respective notes for the year ended December 31, 2018 as issued on March 14, 2019.

 

The issuance of these unaudited condensed consolidated interim financial statements was authorized by Héctor Blas Grisi Checa, Executive President and Chief Executive Officer (CEO) and Director and by the Board of Directors Bank on July 25, 2019. These unaudited condensed consolidated interim financial statements are pending the approval of the ordinary shareholders’ meeting, where they may be modified, based on provisions set forth in the Mexican Corporations Law (Ley General de Sociedades Mercantiles).

 

Note 3 - Explanation for translation into English

 

The accompanying unaudited condensed consolidated interim financial statements have been translated from Spanish into English for use outside of México. Certain accounting practices applied by the Institution may not conform to accounting principles generally accepted in the country of use.

 

Note 4 - Significant accounting policies

 

The same accounting policies, presentation and methods of computation have been followed in these unaudited condensed consolidated interim financial statements as were applied in the preparation of the Institution’s financial statements for the year ended December 31, 2018.

 

a. Monetary unit of the financial statements

 

These unaudited condensed consolidated interim financial statements and notes as of June 30, 2019 and 2018 and for the year ended December 31, 2018, include balances and transactions in Mexican pesos of different purchasing power.

 

b. Consolidation

 

The accompanying unaudited condensed consolidated interim financial statements include those of the Bank and its subsidiaries mentioned below. All balances and transactions among the Bank and its subsidiaries have been eliminated.

 

Below is a breakdown of the consolidated subsidiaries and the Bank’s equity percentage as of June 30, 2019:

 

  Equity
  percentage
   
Santander Consumo, S.A. de C.V., SOFOM E. R. (Santander Consumo) 99.99%
Santander Vivienda, S.A. de C.V., SOFOM E. R. (Santander Vivienda) 99.99%
Santander Inclusión Financiera, S.A. de C.V., SOFOM, E. R. 99.99%
Centro de Capacitación Santander, A. C. 99.99%
Fideicomiso 100740, Banco Santander México, S. A. 99.99%
Fideicomiso GFSSLPT, Banco Santander México, S. A. 89.14%
Santander Servicios Corporativos, S.A. de C.V. 99.99%
Santander Servicios Especializados, S.A. de C.V. 99.99%
Santander Tecnología México, S.A. de C.V. 99.99%

Page  7

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

During the six-month period ended as of June 30, 2019, no changes have occurred in the method and in the scope of consolidation.

 

c. Earnings per share

 

Basic earnings per share are calculated by dividing the net income attributable to controlling interest by the weighted average number of shares outstanding during the year, excluding the average number of treasury shares, if any, held in the year.

 

Accordingly, basic earnings per share for the six-month periods ended June 30, 2019 and 2018 were determined as follows:

 

                 
                 
      June 30, 2019     June 30, 2018    
                 
Net income     10,899     9,898    
Net income attributable to controlling interest     10,899     9,898    
Weighted average number of shares outstanding     6,773,864,696     6,777,167,728    
Basic earnings per share (pesos)     1.61     1.46    

 

In calculating diluted earnings per share, the amount of net income before non-controlling interest and the weighted average number of shares issued, excluding the average number of treasury shares, are adjusted to consider all the dilutive effects inherent to potential shares.

 

Accordingly, diluted earnings per share for the six-month periods ended June 30, 2019 and 2018 were determined as follows:

 

                 
                 
      June 30, 2019     June 30, 2018    
                 
Net income     10,899     9,898    
Net income attributable to controlling interest     10,899     9,898    
Weighted average number of shares outstanding     6,773,864,696     6,777,167,728    
Dilutive effect of rights on shares     13,129,661     9,826,629    
Adjusted number of shares     6,786,994,357     6,786,994,357    
Diluted earnings per share (pesos)     1.61     1.46    

 

Changes in accounting policies applicable in 2019

 

Changes in Accounting Criteria issued by the Commission

 

Accounting Criteria B-6, Loan portfolio and Accounting Criteria D-2, Income Statement

 

On December 27, 2017, certain amendments were published in the Federal Official Gazette (DOF by its Spanish acronym) to the Accounting Criteria issued by the Commission. These Accounting Criteria applicable to credit institutions are adjusted so that they can cancel, in the period in which they occur, the surpluses of the allowance for

 

Page  8

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

loan losses in the income statement, as well as to recognize the recovery of credits previously written-off against the heading "Allowance for loan losses" of the income statement in order to be consistent with international accounting standards established in International Financial Reporting Standards (IFRS).

 

This amendment is mandatory on January 1, 2019.

 

Changes in the NIF issued by the CINIF

 

Improvements to NIF 2019

 

Starting January 1, 2019, the Bank prospectively adopted the following Improvements to the NIF, which were issued by the CINIF and were effective on the aforementioned date. These Improvements to the NIF did not have a significant impact on the financial information presented by the Bank.

 

NIF C-6, Property, plant and equipment

 

NIF C-6 establishes that the assets delivered or, if applicable, the assets received in an exchange of assets must be valued at their fair value. Entity must determine such valuation of fair value according to NIF B-17, Determination of fair value .

 

NIF D-3, Employee benefits

 

A transfer of personnel between entities with recognition of seniority implies for the entity that receives the staff the recognition of a retroactive effect of a Modification to the Plan for the introduction of a new plan. For the entity that transfers implies an Early Settlement of Obligations. In the consolidated financial statements, the effects of the transfers between entities of the group are eliminated, unless the benefits are changed at the time of the transfer.

 

A transfer of personnel between entities under common control with recognition of seniority involves recognizing in the stand alone financial statements of the entity that receives the staff a retroactive effect of a Modification to the Plan equivalent to an introduction of a new plan and for the entity that transfer implies an Early Settlement of Obligations. In the consolidated financial statements, the transfer of personnel has no effect, unless the benefits are changed at the time of the transfer.

 

The interest rate used to discount post-employment benefit obligations (funded or not funded) must be an interest rate without or with very low credit risk, such as the interest rate of government bonds and the interest rate of high quality corporate bonds in absolute terms in a deep market, respectively. The chosen interest rate should be used consistently over time. The currency and term of the bonds utilized to obtain the discount rate must be consistent with the currency and the estimated term for the payment of the Defined Benefit Obligation (DBO). The entity must justify the use of a certain interest rate and, in the case of a change of the discount rate, must justify this fact. Any effect on the present value of the labor liability from a change in the discount rate (from government bonds to corporate bonds or vice versa) should be considered as a change in accounting estimate and recognized prospectively, when this occurs, in the income statement of the period based on the provisions of NIF B-1, Accounting changes and error corrections .

 

The Labor Cost of Past Services (“LCPS”) is the increase or decrease in the DBO for services rendered by employees in previous periods, from:

Page  9

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

a) A Modification to the Plan that, in turn, includes the retroactive effect of benefits to employees by:

 

i. Introduction of a new benefit plan,

 

ii. Benefits assumed by the transfer of employees,

 

iii. Withdrawal of a benefit plan, or

 

iv. Subsequent changes in benefits payable in an established benefit plan; and

 

b) Personnel Reduction

 

A Modification to the Plan occurs when an entity introduces a previously non-existent plan, withdraws or changes the benefits of a defined benefit plan and a Personnel Reduction occurs when an entity significantly reduces the obligation for a reduction in the number of employees covered by the plan (it may arise from an isolated event, such as the closure of a plant or the discontinuance of an operation); this generates a LCPS that is equivalent to the difference between the current DBO and the previous DBO, including, in the case of Personnel Reduction, the payments made by the entity, which corresponds to the increase or decrease in the obligation due to the retroactive effect of previous services on the benefits to employees when performing a Modification to the Plan or Personnel Reduction.

 

Note 5 - Investment in securities

 

Trading securities - As of June 30, 2019 and December 31, 2018, trading securities were as follows:

 

    June 30, 2019
   

Acquisition 

cost

 

Accrued 

interests

 

Gain

(Loss)

  Total
Debt instruments:                                
Government securities:                                
Federal Treasury Securities (CETES)   $ 5,233     $ -     $ 3     $ 5,236  
United Mexican States Bonds (UMS)     40       1       -       41  
US Government Treasury Bills (TBILL and TNOTE)     11,093       21       18       11,132  
Federal Mexican Government                                
Development Bonds (BONDES)     29,209       101       303       29,613  
M Bonds     18,898       142       129       19,169  
Mexican Bank Saving Protection Bonds (BPATS)     10,826       243       5       11,074  
Federal Mexican Government Development Bonds                                
in UDIS (UDIBONDS)     3,066       5       2       3,073  
                                 
Private bank-issued securities:                                
Certificates of Deposit (CEDES)     5,352       18       4       5,374  
Unsecured bonds     1,661       4       -       1,665  
                                 
Private securities:                                
Unsecured bonds     42       -       (42 )     -  
                                 
Capital market instruments:                                
Shares listed in stock exchanges     2,233       -       51       2,284  
Investments in investment funds     998       -       10       1,008  
                                 
Value date transactions (not settled):                                
Government securities:                                
Federal Treasury Securities (CETES)     308       -       -       308  
M Bonds     4,184       -       (23 )     4,161  
Federal Mexican Government Development Bonds                                
in UDIS (UDIBONDS)     767       -       2       769  
Federal Mexican Government Development Bonds (BONDES)     (11 )     -       -       (11 )
Shares listed in stock exchanges     (134 )     -       1       (133 )
                                 
Total trading securities   $ 93,765     $ 535     $ 463     $ 94,763  

Page  10

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

    December 31, 2018
   

Acquisition

cost

 

Accrued 

interests

 

Gain

(Loss)

  Total
Debt instruments:                
Government securities:                
Federal Treasury Securities (CETES)   $ 15,483     $ -     $ (6 )   $ 15,477  
United Mexican States Bonds (UMS)     41       1       (2 )     40  
US Government Treasury Bills (TBILL)     1,472       -       -       1,472  
Federal Mexican Government                                
Development Bonds (BONDES)     20,284       49       577       20,910  
M Bonds     25,165       124       93       25,382  
Mexican Bank Saving Protection Bonds (BPATS)     28,354       660       (6 )     29,008  
Federal Mexican Government Development Bonds                                
in UDIS (UDIBONDS)     9,728       16       30       9,774  
                                 
Private bank-issued securities:                                
Certificates of Deposit (CEDES)     5,000       13       -       5,013  
Unsecured bonds     982       3       -       985  
                                 
Private securities:                                
Unsecured bonds     57       -       (42 )     15  
                                 
Capital market instruments:                                
Shares listed in stock exchanges     1,287       -       29       1,316  
Investments in investment funds     1,023       -       10       1,033  
                                 
Value date transactions (not settled):                                
Government securities:                                
Federal Treasury Securities (CETES)     (1,888 )     -       1       (1,887 )
M Bonds     2,396       -       6       2,402  
Federal Mexican Government Development Bonds                                
in UDIS (UDIBONDS)     752       -       (2 )     750  
Mexican Bank Saving Protection Bonds (BPATS)     201       -       -       201  
                                 
Total trading securities   $ 110,337     $ 866     $ 688     $ 111,891  

 

As of June 30, 2019 and December 31, 2018, the investment in CETES, M Bonds, UDIBONDS, and shares listed in stock exchanges includes the amount of $21,603 and $29,068, respectively, which refers to the collateral provided for securities loan transactions in which the lender is the Central Bank and other institutions, which was classified as restricted under the heading “Trading securities” in the unaudited condensed consolidated balance sheet.

 

    June 30, 2019   December 31, 2018
    Loan term       Loan term    
Asset guarantee   in days   Amount   in days   Amount
Central bank:                
M Bonds     3     $ 19,643       2     $ 19,277  
UDIBONDS     -               2       8,542  
                                 
              19,643               27,819  
                                 
Other institutions:                                
CETES     -       -       7       290  
Shares listed in stock exchanges     -       -       7 and 28       959  
M Bonds     12 and 15       317       -       -  
UDIBONOS     4 and  7       1,643       -       -  
                                 
              1,960               1,249  
                               
          $ 21,603             $ 29,068  

 

Page  11

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

As of June 30, 2019 and December 31, 2018, the related liability of $21,211 and $30,539, respectively, is recorded under the heading of “Collateral sold or pledged as guarantee” in the unaudited condensed consolidated balance sheet which corresponds the obligation to restore the value of collateral as follows:

 

    June 30, 2019   December 31, 2018
    Loan term       Loan term    
    in days   Amount   in days   Amount
Sale and repurchase agreements:                
Other institutions:                
UDIBONDS     3     $ 118       2     $ 2,301  
Subtotal             118               2,301  
                                 
Securities loan transactions:                                
Central bank:                                
CETES     3       8,284       2       8,703  
M Bonds     3       10,186       2       17,546  
UDIBONDS     3       768       2       1,030  
                                 
              19,238              27,279
Other institutions:                                
Shares listed in stock exchanges     -       -       7 and 28       959  
M Bonds     12 and 5       300       -          
UDIBONOS     4 and 7       1,555       -          
                                 
Subtotal             21,093               28,238  
                                 
Total           $ 21,211             $ 30,539  

 

As of June 30, 2019 and December 31, 2018, trading securities include $65,849 and $74,548 respectively that are under sale and repurchase agreements for which reason they are considered as a restricted position.

 

Page  12

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

Securities available for sale - As of June 30, 2019 and December 31, 2018, securities available for sale are comprised as follows:

 

    June 30, 2019
    Acquisition   Accrued   Gain    
Debt instrument   cost   interests   (Loss)   Total
Government securities:                
M Bonds   $ 46,876     $ (747 )   $ 114     $ 46,243  
UMS     65,456       2,488       1,396       69,340  
BPATS     11,248       11       251       11,510  
UDIBONDS     7,565       (87 )     11       7,489  
Foreign government debt securities     39,554       (5 )     -       39,549  
                                 
Private securities:                                
Unsecured bonds     2,710       (90 )     67       2,687  
                                 
Capital market instruments                                
                                 
Shares listed in stock exchanges     513       -       4       517  
                                 
Value date transactions (not settled):                                
Government securities:                                
UDIBONDS     (900 )     -       -       (900 )
                                 
Total securities available for sale   $ 173,022     $ 1,570     $ 1,843     $ 176,435  

 

 

    December 31, 2018
    Acquisition   Accrued   Gain    
Debt instrument   cost   interests   (Loss)   Total
Government securities:                
M Bonds   $ 71,742     $ 210     $ (1,933 )   $ 70,019  
UMS     34,263       703       (278 )     34,688  
BPATS     11,250       251       9       11,510  
UDIBONDS     5,546       10       (425 )     5,131  
Foreign government debt securities     52,052       474       297       52,823  
CETES     17,166       -       (20 )     17,146  
                                 
Private securities:                                
Unsecured bonds     3,345       75       (153 )     3,267  
                                 
Capital market instruments                                
                                 
Shares listed in stock exchanges     513       -       (34 )     479  
                                 
Total securities available for sale   $ 195,877     $ 1,723     $ (2,537 )   $ 195,063  

 

Page  13

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

As of June 30, 2019 and December 31, 2018 of the government and private securities related to M Bonds, UMS, BPATS, UDIBONDS and unsecured bonds, the amounts of $18,846 and $20,082 respectively, are under sale and repurchase agreements for which reason they are classified as restricted positions.

 

Securities held to maturity - As of June 30, 2019 and December 31, 2018, securities held to maturity were as follows:

 

    June 30,   December 31,
    2019   2018
Government securities:        
Special CETES - support program for housing loan debtors   $ 3,337     $ 3,208  
Reportable Monetary Regulation Bonds (BREMS R)     7,809       7,785  
                 
      11,146       10,993  
Less:                
Reserve for Special CETES     (166 )     (166 )
                 
Total securities held to maturity   $ 10,980     $ 10,827  

 

Note 6 - Sale and repurchase agreements

 

When the Institution acts as purchaser:

 

    June 30, 2019
    Debtors
under 		  Collateral
received and 		   
    sale and   sold in    
    repurchase   repurchase   Net
    agreements   agreements   position
Government securities:            
BONDES   $ 31,168     $ (18,943 )   $ 12,225  
BPATS     19,153       (8,482 )     10,671  
M Bonds     56,048       (19,557 )     36,491  
CETES     3,715       (1,730 )     1,985  
                         
Subtotal     110,084       (48,712 )     61,372  
                         
Private bank-issued securities:                        
Unsecured bonds     3,487       (262 )     3,225  
CEDES     2,877       -       2,877  
                         
Subtotal     6,364       (262 )     6,102  
                         
Private securities:                        
Unsecured bonds     415       -       415  
                         
Subtotal     415       -       415  
                         
Total   $ 116,863     $ (48,974 )   $ 67,889  

 

Page  14

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

    December 31, 2018
    Debtors
under 		  Collateral
received and 		   
    sale and   sold in    
    repurchase   repurchase   Net
    agreements   agreements   position
Government securities:            
BONDES   $ 29,362     $ (25,054 )   $ 4,308  
CETES     6,268       (6,268 )     -  
BPATS     43,195       (31,337 )     11,858  
M Bonds     3,000       (3,000 )     -  
UMS     13,127       -       13,127  
UDIBONDS     4,477       (4,477 )     -  
                         
Subtotal     99,429       (70,136 )     29,293  
                         
Private bank-issued securities:                        
Unsecured bonds     1,816       (399 )     1,417  
CEDES     4,671       -       4,671  
                         
Subtotal     6,487       (399 )     6,088  
                         
Private securities:                        
Unsecured bonds     2,500       -       2,500  
                         
Subtotal     2,500       -       2,500  
                         
Total   $ 108,416     $ (70,535 )   $ 37,881  

 

As of June 30, 2019 and December 31, 2018, the sale and repurchase agreements performed by the Institution, acting as purchaser, were agreed at an average term of 3 and 4 days, respectively.

Page  15

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

When the Institution acts as seller:

 

    June 30,   December 31,
    2019   2018
         
Government securities:        
BONDES   $ 28,304     $ 16,281  
CETES     5,245       14,969  
BPATS     19,088       37,307  
M Bonds     17,056       10,759  
UDIBONDS     1,430       6,367  
BREMS R     -       6,595  
UMS     817       1,909  
TBILL and TNOTE     7,771       -  
                 
Subtotal     79,711       94,187  
                 
Private bank-issued securities:                
Unsecured bonds     448       693  
CEDES     2,385       5,051  
                 
Subtotal     2,833       5,744  
                 
Private securities:                
Unsecured bonds     2,124       758  
                 
Subtotal     2,124       758  
                 
Total   $ 84,668     $ 100,689  
                 

As of June 30, 2019 and December 31, 2018, the sale and repurchase agreements performed by the Institution, acting as seller, were agreed at an average term of 7 and 6 days, respectively.

 

Page  16

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

Note 7 - Derivatives

 

As of June 30, 2019 and December 31, 2018, the financial derivatives instruments position is as follows:

 

    June 30, 2019   December 31, 2018
                 
    Notional   Asset   Notional   Asset
Asset position   amount   position   amount   position
                                 
Futures:                                
Foreign currency futures   $ 3,869     $ 6     $ 2,537     $ 56  
Index futures     1,232       -       426       2  
                                 
Forwards:                                
Foreign currency forwards     220,076       4,924       237,777       7,127  
Index forwards     13,431       990       11,770       959  
                                 
Options:                                
Foreign currency options     86,103       1,161       87,711       1,236  
Interest rate options     139,838       669       132,484       1,611  
Index options     1,673       132       2,950       67  
Equity securities options     -       -       148       3  
                                 
Swaps:                                
Interest rate swaps (IRS)     3,117,227       68,791       2,803,464       69,819  
Cross currency swaps (CCS)     398,775       63,229       435,698       74,350  
Equity swaps     -       -       1,008       69  
                                 
Total trading     3,982,224       139,902       3,715,973       155,299  
                                 
Cash flow hedges:                                
Forwards:                                
Foreign currency forwards     50,237       2,355       44,057       2,481  
Swaps:                                
IRS     4,000       21       4,000       111  
CCS     13,302       4,291       13,608       4,798  
                                 
Fair value hedges:                                
Swaps:                                
IRS     12,882       426       8,415       157  
CCS     2,375       93       1,493             45 .  
                                 
Total hedging derivatives     82,796       7,186       71,573       7,592  
                                 
Total   $ 4,065,020     $ 147,088     $ 3,787,546     $ 162,891  

Page  17

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

    June 30, 2019   December 31, 2018
                 
    Notional   Liability   Notional   Liability
Liability position   amount   position   amount   position
                 
Futures:                
Foreign currency futures   $ 9,604     $ 6     $ 5,735     $ 56  
Index futures     1       -       462       2  
                                 
Forwards:                                
Foreign currency forwards     156,356       3,254       232,312       5,723  
Index forwards     13,433       988       11,768       958  
                                 
Options:                                
Foreign currency options     108,013       1,617       87,616       1,564  
Interest rate options     136,796       668       142,477       1,695  
Index options     2,629       114       4,004       179  
Equity securities options     -       -       117       4  
                                 
Warrants – Equity and index     136       131       136       123  
                                 
Swaps:                                
IRS     2,927,018       65,604       2,795,454       70,204  
CCS     395,142       64,383       395,656       74,322  
Equity swaps     893       13       -       -  
                                 
Total trading     3,750,021       136,778       3,675,737       154,830  
                                 
Cash flow hedges:                                
Forwards:                                
Foreign currency forwards     21,813       547       14,041       346  
Swaps:                                
CCS     10,022       2,287       10,289       2,911  
                                 
Fair value hedges:                                
Swaps:                                
IRS     3,600       172       1,200       13  
CCS     29,224       5,082       28,489       5,106  
                                 
Total hedging derivatives     64,659       8,088       54,019       8,376  
                                 
Total   $ 3,814,680     $ 144,866     $ 3,729,756     $ 163,206  

Page  18

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

As of June 30, 2019 and December 31, 2018, the guarantees and/or collateral received and delivered for the Over-the-Counter (OTC) derivative financing transactions, which were not transacted on recognized stock markets are as follows:

 

        Delivered
        June 30,   December 31,
    Type of collateral   2019   2018
             
Other receivables (net)            
             
Foreign financial entities   Cash   $ 13,830     $ 8,910  
Mexican financial entities   Cash     6,818       20,597  
                     
        $ 20,648     $ 29,507  
                     
Trading securities (restricted)                    
                     
Mexican financial entities   Government bonds   $ 1,924     $ 2,522  
Foreign financial entities   Government bonds     2,541       3,712  
                     
        $ 4,465     $ 6,234  
                     
        $ 25,113     $ 35,741  

 

        Received
        June 30,   December 31,
    Type of collateral   2019   2018
             
Creditors from collaterals received in cash            
             
Foreign financial entities   Cash   $ 17,528     $ 37,192  
Mexican financial entities   Cash     5,377       5,288  
Other foreign   Cash     19       -  
                     
        $ 29,924     $ 42,480  
                     
Creditors from margin accounts                    
                     
Foreign financial entities   Cash   $ 532     $ 383  
Mexican financial entities   Cash     -       28 .  
                     
        $ 532     $ 411 .  
                     
Memorandum accounts                    
                     
Mexican financial entities   Government bonds   $ 3,273     $ 4,045  
                     
        $ 3,273     $ 4,045  

Page  19

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

Note 8 – Loan portfolio

 

As of June 30, 2019 and December 31, 2018, the loans portfolio by type of customer and currency are as follows:

 

 

    June 30, 2019
                     
          Valued amount        
                     
    Mexican   US   Euros and        
Loan type   pesos   dollars   UDIS   Pound Sterling   Total
                     
Performing loan portfolio:                    
Commercial or business activity loans:   $ 360,230     $ 68.972     $ 1,747     $ 3,489     $ 434,438  
Commercial or business activity loans     296,404       60,376       —         3,489     $ 360,269  
Financial entities loans     10,860       1,570       —         —         12,430  
Government entities loans     52,966       7,026       1,747       —         61,739  
Consumer loans     110,226       —         —         —         110,226  
Mortgage loans:     137,062       555       2,417       —         140,034  
Medium and residential     123,031       555       2,417       —         126,003  
Social interest     42       —         —         —         42  
Loans acquired from INFONAVIT and                                        
FOVISSSTE     13,989       —         —         —         13,989  
                                         
      607,518       69,527       4,164       3,489       684,698  
Non-performing loan portfolio:                                        
Commercial loans:     3,904       1,641       —         —         5,545  
Commercial or business activity loans     3,904       1,641       —         —         5,545  
Consumer loans     4,469       —         —         —         4,469  
Mortgage loans:     5,298       97       222       —         5,617  
Medium and residential     3,775       97       222       —         4,094  
Social interest     5       —         —         —         5  
Loans acquired from INFONAVIT                                        
and FOVISSSTE     1,518       —         —         —         1,518  
                                         
      13,671       1,738       222       —         15,631  
                                         
Total   $ 621,189     $ 71,265     $ 4,386     $ 3,489     $ 700,329  
                                         

 

Page  20

 

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

    December 31, 2018
                     
    Valued amount
                     
    Mexican   US       Euros and    
Loan type   pesos   dollars   UDIS   Pound Sterling   Total
                     
Performing loan portfolio:                    
Commercial loans:   $ 353,792     $ 65,491     $ 2,045     $ 3,382     $ 424,710  
Commercial or business activity loans     281,224       60,336       -       3,382       344,942  
Financial entities loans     19,021       1,200       -       -       20,221  
Government entities loans     53,547       3,955       2,045       -       59,547  
Consumer loans     106,576       -       -       -       106,576  
Mortgage loans:     132,280       622       2,573       -       135,475  
Medium and residential     117,364       622       2,573       -       120,559  
Social interest     55       -       -       -       55  
Loans acquired from INFONAVIT                                        
and FOVISSSTE     14,861       -       -       -       14,861  
                                         
      592,648       66,113       4,618       3,382       666,761  
Non-performing loan portfolio:                                        
Commercial loans:     3,325       2,327       -       -       5,652  
Commercial or business activity loans     3,318       2,327       -       -       5,645  
Financial entities loans     7       -       -       -       7  
Consumer loans     4,261       -       -       -       4,261  
Mortgage loans:     5,621       112       441       -       6,174  
Medium and residential     4,364       112       441       -       4,917  
Social interest     12       -       -       -       12  
Loans acquired from INFONAVIT                                        
and FOVISSSTE     1,245       -       -       -       1,245  
                                         
      13,207       2,439       441       -       16,087  
                                         
Total   $ 605,855     $ 68,552     $ 5,059     $ 3,382     $ 682,848  

 

During the six-month period ended June 30, 2019, the average placement interest rate was 13.72% and 4.84% for loans denominated in Mexican pesos and foreign currency (mainly US dollars and Euros), respectively, and during 2018, this rate was 13.54% and 4.24% for loans denominated in Mexican pesos and foreign currency (mainly US dollars and Euros), respectively.

 

As of June 30, 2019 and December 31, 2018, the valuation (fair value) of the loan portfolio hedged with derivative financial instruments was $152 and $6, respectively.

 

Loans to related parties

 

As of June 30, 2019 and December 31, 2018, loans have been granted to related parties per article 73 of the Law on Credit Institutions amounting to $101,357 and $101,746, respectively, which were approved by the Board of Directors. As of June 30, 2019 and December 31, 2018, these amounts include a loan granted to Santander Consumo for $40,021

 

Page  21

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

and $43,800, respectively and a loan granted to Santander Vivienda for $39,851 and $32,686, respectively. These loans were eliminated from the unaudited condensed consolidated balance sheet for consolidation purposes.

 

Available lines of credit under credit card loans

 

As of June 30, 2019 and December 31, 2018, authorized available lines of credit under credit card loans amounts to $214,277 and $238,273, respectively.

 

Government entities loans

 

As of June 30, 2019 and December 31, 2018, loans granted to the Government entities, were as follows:

 

    June 30,   December 31,
    2019   2018
         
Unsecured loans   $ 60,591     $ 58,278  
General loans     550       594  
Restructured loans     251       261  
Discounted portfolio loans     351       419  
                 
      61,743       59,552  
                 
Advanced interest payments     (4 )     (5 )
                 
Total   $ 61,739     $ 59,547  

 

As of June 30, 2019, aging of non-performing portfolio is as follows:

 

    Period
                 
    From 1 to   From 181 to   From 365 days    
Loan type   180 days   365 days   to 2 years   Total
                 
Commercial or business activity loans   $ 2,834     $ 730     $ 1,981     $ 5,545  
Consumer loans     4,441       5       23       4,469  
Mortgage loans:     2,566       1,058       1,993       5,617  
  Medium and residential     1,046       1,057       1,991       4,094  
  Social interest     2       1       2       5  
  Loans acquired from INFONAVIT and                                
  FOVISSSTE     1,518       -       -       1,518  
                                 
    $ 9,841     $ 1,793     $ 3,997     $ 15,631  

Page  22

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

As of December 31, 2018, aging of non-performing portfolio is as follows:

 

    Period
                 
    From 1 to   From 181 to   From 365 days    
Loan type   180 days   365 days   to 2 years   Total
                 
Commercial or business activity loans   $ 2,754     $ 1,006     $ 1,885     $ 5,645  
Financial entities loans     7       -       -       7  
Consumer loans     4,138       108       15       4,261  
Mortgage loans:     2,185       1,205       2,784       6,174  
  Medium and residential     938       1,203       2,776       4,917  
  Social interest     2       2       8       12  
  Loans acquired from INFONAVIT and                                
  FOVISSSTE     1,245       -       -       1,245  
                                 
    $ 9,084     $ 2,319     $ 4,684     $ 16,087  

 

For the six-month periods ended June 30, 2019 and June 30, 2018, interests generated on the loan portfolio of the Institution were as follows:

 

    June 30,   June 30,
    2019   2018
         
Commercial or business activity loans   $ 19,145     $ 16,337  
Financial entities loans     661       568  
Government entities loans     2,685       2,138  
Consumer loans     7,168       6,464  
Mortgage loans     7,038       6,455  
                 
      36,697       31,962  
                 
Credit card loans     7,288       6,680  
                 
Total   $ 43,985     $ 38,642  

 

Acquisition of loan portfolio

 

In June 2019, the Institution acquired a non-revolving consumer loans portfolio from Banco Mercantil del Norte, S.A., Institución de Banca Múltiple, Grupo Financiero Banorte. The acquired portfolio consists of 2,729 loans with a contractual value of $208. The acquisition price for the transaction was $208.

 

Simultaneously, as of June 30, 2019, the Institution recognized an amount of $4 in the unaudited condensed consolidated statement of income related to the creation of the allowance for loan losses at the time of acquisition.

 

Assignment of loan portfolio

 

In January 2019, the Institution sold a mortgage written off loan portfolio. The sales price for the transaction was $353, generating a gain of $353, which was recorded in the unaudited condensed consolidated statement of income under the heading “Provisions for loan losses” as loans recoveries.

 

Page  23

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

During March, April and June 2018, the Institution made sales of commercial portfolio, whose book value amounted was $1,471. The sale price said portfolio was $1,451, resulting in a loss in the consolidated statement of income of $20, which was recognized under “Other operating income”.

 

Likewise, the Institution made a sale of a written-off loans whose recovery value amounted to $157. The amount received for this operation was recognized in “Recovery of previously written-off loans”, under “Other operating income”.

 

Note 9 – Allowance for loan losses

 

As of June 30, 2019 and December 31, 2018, the allowance for loan losses was $21,345 and $21,100, respectively, and was comprised as follows:

 

    Performing   Non-performing   Allowance for
June 30, 2019   loan portfolio   loan portfolio   loan losses
             
Commercial loans   $ 3,644     $ 3,583     $ 7,227  
Mortgage loans     854       1,250       2,104  
Consumer loans     8,786       3,228       12,014  
                         
Total   $ 13,284     $ 8,061     $ 21,345  

 

    Performing   Non-performing   Allowance for
December 31, 2018   loan portfolio   loan portfolio   loan losses
             
Commercial loans   $ 3,295     $ 3,528     $ 6,823  
Mortgage loans     1,267       1,410       2,677  
Consumer loans     8,506       3,094       11,600  
                         
Total   $ 13,068     $ 8,032     $ 21,100  

 

As of June 30, 2019 and December 31, 2018, the Institution maintained an allowance for loan losses equivalent to 137% and 131% of the non-performing loan portfolio, respectively.

 

The allowance for loan losses resulting from the loan portfolio classifications as of June 30, 2019 and December 31, 2018 recorded in the same years, together with the additional allowance required, were classified as follows:

 

    June 30, 2019   December 31, 2018
                 
Degree of credit risk   Classification of the loan portfolio by risk degree   Allowance for loan losses   Classification of the loan portfolio by risk degree   Allowance for loan losses
                 
A   $ 631,965     $ 3,529     $ 638,366     $ 3,340  
B     99,783       3,636       89,984       3,408  
C     28,777       2,832       29,372       2,859  
D     10,197       3,649       10,309       3,797  
E     9,914       6,947       9,877       5,959  
                                 
Base classification portfolio     780,636       20,593       777,908       19,363  
                                 
Less -                                
Guarantees and credit openings     (79,624 )     -       (94,267 )     -  
Un-accrued financial burden     (518 )     -       (616 )     -  
Interest collected in advance on                                
factoring operations     (165 )     -       (177 )     -  
                                 
Loan portfolio   $ 700,329       -     $ 682,848       -  
                                 
Additional reserves              752               1,737  
                                 
Total allowance for loan losses            $ 21,345             $ 21,100  

Page  24

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

Changes in the allowance for loan losses for the six-month period ended June 30, 2019 and for the year ended December 31, 2018 are as follows:

 

    June 30,   December 31,
    2019   2018
         
Opening balances   $ 21,100     $ 20,051  
                 
Provisions (applications) with a charge (credit) to:                
Charge     10,656       20,656  
Transfer of foreclosed assets     (42 )     (65 )
Written-off loans     (10,324 )     (19,591 )
Other     (45 )     49  
                 
Closing balances   $ 21,345     $ 21,100  

 

Note 10 - Other receivables (net)

 

As of June 30, 2019 and December 31, 2018, Other receivables are comprised as follows:

 

    June 30,   December 31,
    2019   2018
         
Collateral given in cash for transactions performed on OTC markets   $ 20,648     $ 29,507  
Receivables arising from settlement of transactions     36,163       44,342  
Other debtors     12,538       7,025  
Employee loans     4,260       4,239  
Recoverable taxes     5,262       4,801  
                 
      78,871       89,914  
                 
Allowance for doubtful accounts     (926 )     (825 )
                 
Total   $ 77,945     $ 89,089  

Page  25

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

As of June 30, 2019 and December 31, 2018, receivables arising from settlement of transactions are as follows:

 

    June 30,   December 31,
    2019   2018
         
Foreign currency   $ 21,345     $ 33,603  
Debt instruments     14,569       6,428  
Equity securities     195       1  
Derivatives     54       4,310  
                 
Total   $ 36,163     $ 44,342  

 

Note 11 - Deposits

 

As of June 30, 2019 and December 31, 2018, deposits by type of currency are as follows:

 

    Mexican pesos   Foreign currency   Total
                         
    June 30,   December 31,   June 30,   December 31,   June 30,   December 31,
    2019   2018   2019   2018   2019   2018
Demand deposits                        
                         
Non-interest   $ 190,602     $ 206,597     $ 47     $ 43     $ 190,649     $ 206,640  
Interest     200,739       194,454       66,738       53,951       267,477       248,405  
                                                 
      391,341       401,051       66,785       53,994       458,126       455,045  
                                                 
Time deposits                                                
                                                 
Customer deposits     192,717       161,532       14,301       17,446       207,018       178,978  
Money market     54,146       57,777       397       511       54,543       58,288  
                                                 
      246,863       219,309       14,698       17,957       261,561       237,266  
                                                 
Credit instruments issued                                                
                                                 
Banking bonds issued     5,582       5,024       19,360       19,985       24,942       25,009  
Unsecured bonds     23,431       13,226       6,345       6,490       29,776       19,716  
                                                 
      29,013       18,250       25,705       26,475       54,718       44,725  
                                                 
Global deposits account                                                
without movements     1,441       1,361       160       140       1,601       1,501  
                                                 
Total   $ 668,658     $ 639,971     $ 107,348     $ 98,566     $ 776,006     $ 738,537  

Page  26

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

As of June 30, 2019 and December 31, 2008, end-of-period funding rates were as follows:

 

  June 30, 2019 December 31, 2018
         
  Mexican Foreign Mexican Foreign
  pesos currency pesos currency
  (%) (%) (%) (%)
Demand deposits -        
Checking accounts From 0.398 From 0.02 From 0.398 From 0.01
  to 8.71 to 0.46 to 8.58 to 0.46
         
Time deposits - From 0.15 From  0.10 From 0.15 From 0.10
Fixed-term deposits to 8.70 to 1.3 to 8.64 to 1.30

 

Note 12 – Credit instruments issued

 

As of June 30, 2019 and December 31, 2018, the Institution has issued short and long-term debt with a market value of $54,718 and $44,725, respectively, which are comprised as follows:

 

 

 

    Number of securities   Market Value        
Instrument   2019   2018   2019   2018   Maturity date   Rate
Certificates of deposits (unsecured)     17,000,000       17,000,000       1,700       1,700     09-Mar-2021     8.91%
Certificates of deposits (unsecured)     40,000,000       40,000,000       4,000       4,000     14-Jun-2021     Variable rate (TIIE + 38 basis points)  
Certificates of deposits (unsecured)     30,000,000       30,000,000       3,000       3,000     01-Sep-2026     7.19%
Certificates of deposits (unsecured)     63,375,456       64,835,401       6,338       6,484     10-Feb-2020     Variable rate (LIBOR + 20 basis points)  
Certificates of deposits (unsecured)     44,609,710       44,609,710       4,461       4,461     06-May-2022     Variable rate (TIIE + 15 basis points)  
Certificates of deposits (unsecured)     71,500,000       —         7,150       —       30-Mar-2026     8.95
Certificates of deposits (unsecured)     28,500,000       —         2,850       —       04-Apr-2022     Variable rate (TIIE + 10 basis points)  
Structured bank bonds     100,000       100,000       10       10     11-Jul-2019     Index (IPC)  
Structured bank bonds     100,000       100,000       10       10     30-Jul-2019     Index (IPC)  
Structured bank bonds     100,000       100,000       10       10     30-Jul-2019     Index (IPC)  
Structured bank bonds     383,000       —         38       —       01-Jul-2019     11%
Structured bank bonds     300,000       —         30       —       01-Jul-2019     12%
Structured bank bonds     110,000       —         11       —       01-Jul-2019     12%
Structured bank bonds     200,000       —         20       —       02-Jul-2019     16%
Structured bank bonds     22,186       —         2       —       02-Jul-2019     Variable rate (FX)  
Structured bank bonds     576,261       —         58       —       02-Jul-2019     5%
Structured bank bonds     100,000       —         10       —       05-Jul-2019     12%
Structured bank bonds     94,400       —         9       —       05-Jul-2019     14%
Structured bank bonds     200,000       —         20       —       05-Jul-2019     13%

 

 

 

Page  27

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

Structured bank bonds     26,143       —         3       —         08-Jul-2019       Variable rate (FX)  
Structured bank bonds     5,000,000       —         500       —         10-Jul-2019       10%  
Structured bank bonds     254,000       —         25       —         11-Jul-2019       12%  
Structured bank bonds     140,000       —         14       —         11-Jul-2019       12%  
Structured bank bonds     1,000,000       —         100       —         11-Jul-2019       11%  
Structured bank bonds     363,890       —         36       —         11-Jul-2019       12%  
Structured bank bonds     576,261       —         58       —         11-Jul-2019       4%  
Structured bank bonds     12,659       —         1       —         12-Jul-2019       Variable rate (FX)  
Structured bank bonds     103,785       —         10       —         15-Jul-2019       9%  
Structured bank bonds     1,500,000       —         150       —         17-Jul-2019       12%  
Structured bank bonds     300,000       —         30       —         18-Jul-2019       12%  
Structured bank bonds     300,000       —         30       —         18-Jul-2019       12%  
Structured bank bonds     247,570       —         25       —         18-Jul-2019       12%  
Structured bank bonds     220,000       —         22       —         19-Jul-2019       11%  
Structured bank bonds     1,000,000       —         100       —         22-Jul-2019       12%  
Structured bank bonds     150,308       —         15       —         22-Jul-2019       5%  
Structured bank bonds     928,000       934,000       93       93       04-Sep-2019       Index (IBEX35)  
Structured bank bonds     943,600       963,600       94       96       25-Sep-2019       Variable rate (TIIE)  
Structured bank bonds     848,000       —         85       —         26-Sep-2019       4.75%  
Structured bank bonds     45,500       73,500       5       7       03-Oct-2019       Index (NKY and SXE)  
Structured bank bonds     1,390,500       1,390,500       139       139       15-Oct-2019       9.5411  
Structured bank bonds     1,010,000       1,010,000       101       101       16-Oct-2019       Index (Euro STOXX 50)  
Structured bank bonds     1,750,000       1,750,000       175       175       14-Nov-2019       Index (SXDP)  
Structured bank bonds     684,150       686,150       68       69       22-Nov-2019       Index (S&P 500)  
Structured bank bonds     150,000       150,000       15       15       19-Dec-2019       Index (Euro STOXX 50)  
Structured bank bonds     370,100       370,100       37       37       27-Dec-2019       Index (Euro SX7E)  
Structured bank bonds     162,005       162,005       16       16       20-Feb-2020       Variable rate (FX)  
Structured bank bonds     162,005       162,005       16       16       20-Feb-2020       Index (Euro SX5E)  
Structured bank bonds     1,391,000       —         139       —         23-Mar-2020       Variable rate (TIIE)  
Structured bank bonds     1,344,340       —         134       —         25-Mar-2020       Variable rate (TIIE)  
Structured bank bonds     500,000       —         50       —         27-Mar-2020       5%  
Structured bank bonds     193,500       —         19       —         27-Mar-2020       5%  
Structured bank bonds     2,652,000       2,887,000       265       289       02-Jun-2020       Index (Euro SX5E)  
Structured bank bonds     1,962,500       —         196       —         26-Jun-2020       4%  
Structured bank bonds     1,135,000       —         114       —         26-Jun-2020       Index (IPC)  
Structured bank bonds     8,459,514       8,767,714       846       877       23-Oct-2020       Variable rate (TIIE)  
Structured bank bonds     4,159,767       4,988,767       416       499       26-Oct-2020       Index (SXDP)  
Structured bank bonds     100,000       100,000       10       10       05-Nov-2020       Variable rate (TIIE)  
Structured bank bonds     2,199,000       2,376,500       220       238       09-Nov-2020       Index (SXDP)  

 

 

Page  28

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

Structured bank bonds     1,222,500       1,388,500       122       139       23-Nov-2020       Index (SXDP)  
Structured bank bonds     1,800,300       1,838,300       180       184       14-Dec-2020       Index (SXDP)  
Structured bank bonds     1,661,500       —         166       —         28-Jan-2021       10%  
Structured bank bonds     474,500       474,500       47       47       23-Feb-2021       Variable rate (TIIE)  
Structured bank bonds     231,100       231,100       23       23       03-Mar-2021       Index (SXDP)  
Structured bank bonds     45,000       45,000       5       5       03-Mar-2021       Index (SXDP)  
Structured bank bonds     1,692,000       —         169       —         08-Mar-2021       9.5%  
Structured bank bonds     61,000       61,000       6       6       16-Mar-2021       Variable rate (TIIE)  
Structured bank bonds     591,000       —         59       —         26-Mar-2021       9.5%  
Structured bank bonds     3,055,180       3,206,180       306       321       23-Apr-2021       Variable rate (TIIE)  
Structured bank bonds     204,000       204,000       20       20       12-May-2021       Variable rate (TIIE)  
Structured bank bonds     488,535       611,785       49       61       24-May-2021       Variable rate (TIIE)  
Structured bank bonds     582,500       —         58       —         17-Mar-2022       Variable rate (TIIE)  
Structured bank bonds     520,000       —         52       —         17-Mar-2022       Variable rate (TIIE)  
Structured bank bonds     17,500       —         2       —         17-Mar-2022       Variable rate (TIIE)  
Structured bank bonds     50,000       —         5       —         17-Mar-2022       Variable rate (TIIE)  
Structured bank bonds     —         200,000       —         20       07-Nov-2019       Index (SXDP)  
Structured bank bonds     —         510,000       —         51       09-Nov-2020       Index (SXDP)  
Structured bank bonds     —         247,114       —         25       01-Feb-2019       0.25%  
Structured bank bonds     —         150,000       —         15       05-Feb-2019       11%  
Structured bank bonds     —         100,000       —         10       14-Feb-2019       Index (IBEX35)  
Structured bank bonds     —         1,100,000       —         110       21-Feb-2019       Index (Euro STOXX 50)  
Structured bank bonds     —         555,000       —         56       01-Mar-2019       Index (S&P and IPC)  
Structured bank bonds     —         197,100       —         20       05-Mar-2019       Index (NIKKEI 225)  
Structured bank bonds     —         5,354,550       —         535       25-Mar-2019       Index (IPC)  
Structured bank bonds     —         95,000       —         10       27-Mar-2019       Index (NIKKEI 225)  
Structured bank bonds     —         293,000       —         29       27-Mar-2019       Index (S&P and IPC)  
Structured bank bonds     —         161,000       —         16       03-Apr-2019       Index (NIKKEI 225)  
Structured bank bonds     —         496,000       —         50       26-Apr-2019       Index (Euro STOXX 50)  
Structured bank bonds     —         1,135,952       —         114       26-Apr-2019       Index (SX7E)  
Structured bank bonds     —         62,055       —         6       26-Apr-2019       Index (SX7E)  
Structured bank bonds     —         1,843,263       —         184       17-May-2019       Index (Euro STOXX 50)  
Structured bank bonds     —         202,000       —         20       23-May-2019       Index (IBEX35)  
Structured bank bonds     —         1,219,000       —         122       29-May-2019       Index (S&P and IPC)  
Structured bank bonds     —         700,000       —         70       03-Jan-2019       12.23%  
Structured bank bonds     —         393,024       —         39       03-Jan-2019       6.34%  
Structured bank bonds     —         133,412       —         13       04-Jan-2019       0.25%  
Structured bank bonds     —         15,000       —         2       06-Jun-2019       Index (IBEX35)  

 

 

Page  29

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

Structured bank bonds     -       2,164,444       -       216     06-Jun-2019   Index (IBEX35)
Structured bank bonds     -       271,500       -       27     06-Jun-2019   Index (IBEX35)
Structured bank bonds     -       588,500       -       59     06-Jun-2019   Index (IBEX35)
Structured bank bonds     -       400,000       -       40     08-Jan-2019   Variable rate (FX)
Structured bank bonds     -       100,000       -       10     09-Jan-2019   11%
Structured bank bonds     -       240,520       -       24     10-Jan-2019   12%
Structured bank bonds     -       250,000       -       25     10-Jan-2019   12%
Structured bank bonds     -       600,000       -       60     10-Jan-2019   Variable rate (FX)
Structured bank bonds     -       589,536       -       59     11-Jan-2019   5.81%
Structured bank bonds     -       319,312       -       32     14-Jan-2019   0.25%
Structured bank bonds     -       100,000       -       10     18-Jan-2019   12%
Structured bank bonds     -       274,154       -       27     18-Jan-2019   0.25%
Structured bank bonds     -       1,203,000       -       120     24-Jun-2019   Index (IPC)
Structured bank bonds     -       160,216       -       16     25-Jan-2019   0.25%
Structured bank bonds     -       100,000       -       10     26-Jun-2019   Variable rate (TIIE)
Structured bank bonds     -       150,000       -       15     27-Jun-2019   Index (IPC)
Senior notes     192,087,000       196,512,000       19,209       19,651     09-Nov-2022   4.125%
      545,789,725       450,762,969       54,577       45,076      
                                     
Minus -                                    
Issuance costs               (84 )     (169 )        
                                     
Plus                                    
Valuation of structured bonds                 (120 )     (374 )    
Accrued interest                 345       192      
Total     545,789,725       450,762,969       54,718       44,725      

 

 

  

Page  30

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

Note 13 - Bank and other loans

 

As of June 30, 2019 and as of December 31, 2018 are as follows:

 

    June 30,   December 31,
    2019   2018
         
    Total   Total
         
Demand loans:        
Received “call money” transactions   $ 21,491     $ 9,717  
Loans with foreign banking institutions     19       12  
Loans with development banking institutions     430       120  
Loans with public fiduciary funds     365       141  
                 
Total demand loans     22,305       9,990  
                 
Short-term portion:                
Loans entered into with foreign banks     7,031       7,539  
Loans from development banking institutions     2,614       3,304  
Loans from public fiduciary funds     8,171       8,241  
                 
Total short-term loans     17,816       19,084  
                 
Long-term portion:                
Loans entered into with foreign banks     20       30  
Loans from development banking institutions     21,129       20,900  
Loans from public fiduciary funds     6,819       7,079  
                 
Total long-term loans     27,968       28,009  
                 
Total interbank and other loans   $ 68,089     $ 57,083  

 

Note 14 - Creditors from settlement of transactions

 

As of June 30, 2019 and December 2018, are as follows:

 

    June 30,   December 31,
    2019   2018
         
Foreign currency   $ 22,360     $ 37,931  
Debt securities     18,917       8,051  
Option contracts     161       2,637  
Equity securities     61       1  
                 
Total   $ 41,499     $ 48,620  

Page  31

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

Note 15 - Comparative maturities of principal assets and liabilities

 

The maturities of the significant assets and liabilities held as of June 30, 2019 were as follows:

 

        Up to   1 to   Over    
    6 months   1 year   5 years   5 years   Total
Assets:                    
Funds available   $ 44,949     $ -     $ 40     $ 28,203     $ 73,192  
Margin accounts     3,826       -       -       -       3,826  
Trading securities     35,878       10,486       37,140       11,259       94,763  
Securities available for sale     80,875       8,513       59,858       27,189       176,435  
Securities held to maturity     -       -       1,468       9,512       10,980  
Debtors under sale and repurchase agreements     67,889       -       -       -       67,889  
Derivatives     7,743       6,247       62,647       70,451       147,088  
Performing loan portfolio     213,313       75,960       256,421       139,004       684,698  
Other receivables (net)     68,123       5,245       1,452       3,125       77,945  
                                         
Total assets   $ 522,596     $ 106,451     $ 419,026     $ 288,743     $ 1,336,816  
                                         
Liabilities:                                        
Demand deposits   $ 458,126     $ -     $ -     $ -     $ 458,126  
Time deposits     188,817       72,066       677       1       261,561  
Credit instruments issued     2,346       7,016       16,082       29,274       54,718  
Bank and other loans     40,422       2,722       14,646       10,299       68,089  
Creditors under sale and repurchase agreements     84,668       -       -       -       84,668  
Collateral sold or pledged as guarantee     21,211       -       -       -       21,211  
Derivatives     8,989       6,488       57,982       71,407       144,866  
Creditors from settlement of transactions     41,499       -       -       -       41,499  
Creditors from collaterals received in cash     22,924       -       -       -       22,924  
Sundry creditors and other payables     21,754       6,250       4,832       6,258       39,094  
Subordinated liabilities     371       -       -       34,515       34,886  
                                         
Total liabilities   $ 891,127     $ 94,542     $ 94,219     $ 151,754     $ 1,231,642  
                                         
Assets less liabilities   ($ 368,531 )   $ 11,909     $ 324,807     $ 136,989     $ 105,174  

 

Note 16 - Related-party transactions and balances

 

Transactions are carried out among subsidiaries and affiliate companies of the Institution (“related companies”), such as investment, deposits, rendering of services, etc., most of which generate income for one entity and an expense for another. Transactions and balances among consolidating companies were eliminated, while those of unconsolidated entities remain in effect.

 

As of June 30, 2019 and December 31, 2018, the Institution’s main receivable and payable balances with related parties are as follows:

 

    June 30,   December 31,
Receivable:   2019   2018
         
Funds available   $ 2,280     $ 959  
                 
Debtors under sale and repurchase agreements (1)   $ 1,736     $ 14,529  
                 
Derivatives (asset) (2)   $ 57,230     $ 69,187  
                 
Performing loan portfolio (3)   $ 6,645     $ 5,471  

Page  32

 

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

    June 30,   December31,
Receivable:   2019   2018
         
Other receivables, (net) (4)   $ 8,339     $ 4,615  
                 
Other assets, (net)   $ 1,072     $ 953  
                 
Payable:                
                 
Time deposits (5)   $ 1,930     $ 2,197  
                 
Demand deposits   $ 5,958     $ 2,110  
                 
Credit instruments issued (6)   $ 973     $ 980  
                 
Creditors under sale and repurchase agreements (1)   $ 7,283     $ 9,287  
                 
Derivatives (liability) (2)   $ 42,254     $ 37,087  
                 
Other payables (7)   $ 17,419     $ 33,588  
                 
Creditors from settlement of transactions   $ 4,248     $ 724  
                 
Subordinated liabilities (8)   $ 27,480     $ 28,109  
                 

The most significant transactions carried out by the Institution with related parties (at face values) for the six-month periods ended June 30, 2019 and 2018, were as follows:

 

    June 30,   June 30,
Revenues:   2019   2018
         
Interest income   $ 137     $ 110  
                 
Interest from debtors under repurchase agreements   $ 67     $ 65  
                 
Other Income   $ 94     $ 80  
                 
Expenses:                
                 
Interest expense   $ 1,299     $ 1,847  
                 
Administrative and promotional expenses   $ 486     $ 445  
                 
Technical advisory services   $ 841     $ 1,020  
                 
Net gain on financial assets and liabilities   ($ 14,128 )   ($ 4,511 )
                 
Net Commission and fees   $ 3,216     $ 3,083  

Page  33

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

(1) As of June 30, 2019 and December 31, 2018, transactions with related parties reported in Debtors under sale and repurchase agreements are:

 

    June 30,   December 31,
    2019   2018
    Assets   Liabilities   Assets   Liabilities
                 
Casa de Bolsa Santander, S.A. de C.V.   $ 1,736     $ 7,268     $ 1,402     $ 9,270  
Banco Santander Spain     -       -       13,127       -  
Other     -       15       -       17  
                                 
    $ 1,736     $ 7,283     $ 14,529     $ 9,287  

 

(2) As of June 30, 2019 and December 31, 2018, asset and liability transactions with derivative financial instruments are as follows:

 

    June 30,   December 31,
    2019   2018
    Assets   Liabilities   Assets   Liabilities
                 
Banco Santander Spain   $ 57,216     $ 42,201     $ 69,178     $ 37,082  
Other     14       53       9       5  
                                 
    $ 57,230     $ 42,254     $ 69,187     $ 37,087  

 

(3)  

 

As of June 30, 2019, it is comprised of loans to Santander Global Technology, S.L. and Santander Capital Structuring, S.A. de C.V., which amount to $1,713 and $1,896, respectively, at an average interest rate of 8.34% and 9.54% respectively.

 

As of December 31, 2018, it is comprised of loans to Santander Global Technology, S.L. and Santander Capital Structuring, S.A. de C.V. which amount to $1,745 and $1,296, respectively, at an average interest rate of 6.85% and 11.33%, respectively.

 

(4) As of June 30, 2019, other accounts receivable are primarily comprised of:

 

· Transactions pending settlement with Banco Santander Spain and Casa de Bolsa Santander, S.A. de C.V. for $2,319 and $4,366, respectively.

 

· Commission receivables of $1,269 from Zurich Santander Seguros México, S.A. for the placement of insurance policies through Bank branches and $152 from SAM Asset Management S.A. de C.V. for the placement of investments in investment funds.

 

As of December 31, 2018, other accounts receivable are primarily comprised of:

 

· Commission receivables of $1,108 from Zurich Santander Seguros México, S. A. for the placement of insurance policies through Bank branches and $153 from SAM Asset Management S.A. de C.V. for the placement of investments in investment funds.

 

Page  34

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

(5) As of June 30, 2019, time deposits are as follows:

 

        2019       Total
Company   Instrument   Amount   Term   (%)
                 
Santander Global Technology, S.L.   Time deposit (Mexican pesos and US dollars)   $ 383     3 days     6.87  
Santander Capital Structuring, S.A. de C.V.   Time deposit (Mexican pesos and US dollars)     201     4  days     7.33  
Santander Global Facilities, S.A. de C.V.   Time deposit (Mexican pesos and US dollars)     538     3  days     7.33  
Other   Promissory note     175              
                         
            $1,297              

 

As of December 31, 2018, time deposits are as follows:

 

        2018       Total
Company   Instrument   Amount   Term   (%)
                 
Santander Global Technology, S.L.   Time deposit (Mexican pesos and US dollars)   $ 377     2 days     6.87  
Santander Capital Structuring, S.A. de C.V.   Time deposit (Mexican pesos and US dollars)     355     2 days     6.75  
Santander Global Facilities, S.A. de C.V.   Time deposit (Mexican pesos and US dollars)     324     3 days     7.33  
Other   Promissory note     342              
                         
           $1,398              
                         
(6) As of June 30, 2019 and December 31, 2018, Banco Santander Spain has an investment in credit instruments issued by the Institution with the following characteristics:

 

Series   Amount   Term (years)   Rate (%)
             
2019            
                         
BSANTM   $ 947       4       4.125  
                         
Total   $ 947                  

 

Series   Amount   Term (years)   Rate (%)
             
2018            
                         
BSANTM   $ 969       4       4.125  
                         
Total   $ 969                  

Page  35

 

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

(7) As of June 30, 2019 and December 31, 2018, other accounts payable is comprised of:

 

    June 30, 2019   December 31, 2018
         
Guarantees on derivatives transactions:                
Banco Santander, S.A. (Spain)   $ 16,187     $ 32,949  

 

(8) As of June 30, 2019, Banco Santander Spain, maintains an investment in subordinated liabilities issued by the Bank with the following characteristics:

 

    Amount   Term (years)   Rate (%)
             
Subordinated liabilities   $ 19,007       9       5.95  
                         
Subordinated Additional Tier I Capital Notes     8,473       31       8.5  
                         
Total   $ 27,473                  

 

As of December 31, 2018, Banco Santander Spain, maintains an investment in subordinated liabilities issued by the Bank with the following characteristics:

 

    Amount   Term (years)   Rate (%)
             
Subordinated liabilities   $ 19,441       10       5.95  
                         
Subordinated Additional Tier I Capital Notes     8,668       31       8.5  
                         
Total   $ 28,109                  

 

The Institution entered into professional services contracts with Santander Tecnología México and Santander Global Technology, S.L., which provide systems development and operation services, among others. Similarly, the Institution acquired software developed by Santander Tecnología México and Santander Global Technology, S.L., for $912 and $1,474 for the periods ended June 30, 2019 and December 31, 2018, respectively.

 

Note 17 - Income taxes

 

The Income Tax Law (“LISR”) establishes that the applicable Income Tax (“ISR”) rate for 2014 and subsequent years is 30% of taxable income.

 

ISR is calculated considering certain effects of inflation, such as depreciation calculated according to values at constant prices. In addition, the effect of inflation on certain monetary assets and liabilities is accrued or deducted for the purpose of determining taxable income.

 

Page  36

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

Tax reviews and issues

 

As of June 30, 2019 and December 31, 2018, the Management of the Institution does not report any contingency on revisions and fiscal matters.

 

Note 18 - Stockholders’ equity

 

As of June 30, 2019 and December 31, 2018, capital stock, at nominal value, was as follows:

 

    Number of shares        
                 
      June 30,       December 31,       June 30,       December 31,  
      2019       2018       2019       2018  
                                 
Subscribed capital                                
Fixed capital -                                
Series "F" shares     3,464,309,145       3,464,309,145     $ 13,098     $ 13,098  
Series "B" shares     3,322,685,212       3,322,685,212       12,562       12,562  
                                 
      6,786,994,357       6,786,994,357       25,660       25,660  
                                 
Unsubscribed capital                                
Fixed capital -                                
Series "F" shares     331,811,068       331,811,068       -       -.  
Series "B" shares     318,188,932       318,188,932       -       -.  
                                 
      650,000,000       650,000,000       -       -.  
                                 
Total     7,436,994,357       7,436,994,357     $ 25,660     $ 25,660  

 

Note 19 - Contingencies

 

As of June 30, 2019 and December 31, 2018, the Institution was the defendant in various legal proceedings and claims arising in the ordinary course of business. While this situation represents contingent liabilities, according to the Institution’s Management and their legal, tax and labor lawyers, in the event of an unfavorable final decision, they do not expect any significant effect on the consolidated financial statements.

 

IPAB Indemnity

 

As of June 30, 2019 and December 31, 2018, the amount of the maximum contingencies related to the lawsuits that are covered by the IPAB, without considering those undetermined, is $368, for both periods.

 

Legal contingencies

 

As of June 30, 2019 and December 31, 2018, as a result of its business activities (without considering contingencies covered by the IPAB), the Institution has had certain claims and lawsuits representing contingent liabilities filed against it. Notwithstanding, Management and its internal and external legal, tax and labor advisers do not expect such proceedings to have a material effect on the consolidated financial statements in the event of an unfavorable outcome.

 

Page  37

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

As of June 30, 2019 and December 31, 2018, the Institution has recorded contingency reserves for the amounts of $1,337 and $1,301, respectively, that have been included under the heading “Sundry creditors and other accounts payable” of the unaudited condensed consolidated balance sheet, which, based on the opinion of its internal and external legal advisors, Management considers to be adequate.

 

Note 20 - Financial Margin

 

For the six-month periods ended June 30, 2019 and June 30, 2018, the financial margin were as follows:

 

    June 30, 2019
             
    Amounts    
             
    Mexican pesos   US dollars   Total
Interest income:                        
Interest and yield on loan portfolio   $ 34,948     $ 1,749     $ 36,697  
Interest and yield on loan portfolio related to credit                        
card transactions     7,288       -       7,288  
Interest and yield of securities     8,741       568       9,309  
Interest and yield of funds available     1,286       592       1,878  
Interest and yield of sale and repurchase                        
agreements and securities loans     5,296       -       5,296  
Interest and yield of margin accounts     357       217       574  
Commissions collected on loan originations     287       -       287  
                         
Total interest income     58,203       3,126       61,329  
                         
Interest expense:                        
Interest from demand deposits     (6,184 )     (17 )     (6,201 )
Interest from time deposits     (8,235 )     (460 )     (8,695 )
Interest on bank and other loans     (2,033 )     (188 )     (2,221 )
Interest from credit instruments issued     (1,020 )     (554 )     (1,574 )
Interest from subordinated debt     -       (804 )     (804 )
Interest and premium of sale and repurchase                        
agreements and securities loans     (8,797 )     -       (8,797 )
                         
Total interest expense     (26,269 )     (2,023 )     (28,292 )
                         
Financial margin   $ 31,934     $ 1,103     $ 33,037  

 

Page  38

 

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

    June 30, 2018
             
    Amounts    
             
    Mexican pesos   US dollars   Total
Interest income:                        
Interest and yield on loan portfolio   $ 30,477     $ 1,485     $ 31,962  
Interest and yield on loan portfolio related to credit                        
card transactions     6,680       -       6,680  
Interest and yield of securities     8,727       459       9,186  
Interest and yield of funds available     1,192       332       1,524  
Interest and yield of sale and repurchase                        
agreements and securities loans     3,337       -       3,337  
Interest and yield of margin accounts     365       151       516  
Commissions collected on loan originations     300       -       300  
                         
Total interest income     51,078       2,427       53,505  
                         
Interest expense:                        
Interest from demand deposits     (4,953 )     (5 )     (4,958 )
Interest from time deposits     (6,685 )     (377 )     (7,062 )
Interest on bank and other loans     (1,778 )     (68 )     (1,846 )
Interest from credit instruments issued     (901 )     (468 )     (1,369 )
Interest from subordinated debt     -       (864 )     (864 )
Interest and premium of sale and repurchase                        
agreements and securities loans     (7,996 )     -       (7,996 )
                         
Total interest expense     (22,313 )     (1,782 )     (24,095 )
                         
Financial margin   $ 28,765     $ 645     $ 29,410  
                         

Note 21 - Commission and fee income

 

For the six-month periods ended June 30, 2019 and June 30, 2018, Commission and fee income are comprised as follows:

 

    June 30,   June 30,
Description   2019   2018
         
Debit and credit card   $ 4,623     $ 3,941  
Account management     634       600  
Collection services     1,538       1,425  
Insurance     2,543       2,323  
Investment funds     764       777  
Financial advice and public offers     696       711  
Purchase-sale of securities and money market transactions     435       252  
Checks trading     128       124  
Foreign trade     670       629  
Other     471       757  
                 
    $ 12,502     $ 11,539  

 

Page  39

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

Note 22 - Commission and fee expense

 

For the six-month periods ended June 30, 2019 and June 30, 2018, Commission and fee expense are comprised as follows:

 

    June 30,   June 30,
Description   2019   2018
         
Debit and credit card   $ (1,986 )   $ (1,918 )
Investment Funds     -       (1 )
Insurance     (48 )     (59 )
Financial advice and public offers     (26 )     (2 )
Purchase-sale of securities and money market transaction     (61 )     (74 )
Checks trading     (12 )     (14 )
Other     (1,246 )     (1,140 )
                 
    $ (3,379 )   $ (3,208 )

 

Note 23 - Net gain on financial assets and liabilities

 

For the six-month periods ended June 30, 2019 and June 30, 2018, the main items comprising the Net gain on financial assets and liabilities are as follows:

 

    June 30,   June 30,
    2019   2018
Valuation result                
Foreign exchange   $ 161     $ 575  
Derivatives     2,857       6,102  
Equity shares     23       606  
Debt instruments     984       (1,203 )
                 
      4,025       6,080  
Purchase-sale result                
Foreign exchange     163       59  
Derivatives     (4,068 )     (5,149 )
Equity shares     497       517  
Debt instruments     279       (170 )
                 
      (3,129 )     (4,743 )
                 
Total   $ 896     $ 1,337  

 

Page  40

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

Note 24 - Other operating income (net)

 

For the six-month periods ended June 30, 2019 and June 30, 2018, Other operating income (net) are as follows:

 

    June 30,   June 30.
    2019   2018
         
Recovery of previously written-off loans (*)   $ -     $ 1,496  
Cancellation of liabilities and reserves     160       234  
Technical advisory services     33       56  
Interest on personnel loans     145       141  
Loss on loan portfolio sale     -       (20 )
Write-offs     (526 )     (575 )
Premiums paid on guarantees for SMEs loans portfolio     (381 )     (249 )
Legal expenses and loan portfolio recovery costs     (501 )     (462 )
Provision for legal and tax contingencies     (159 )     (325 )
Allowance for losses on foreclosed assets     (58 )     (47 )
Gain on sale of foreclosed assets     74       43  
Others     222       144  
                 
Total   $ (991 )   $ 436  

 

(*) As mentioned in Note 4 of these unaudited condensed consolidated financial statements, since January 1, 2019, the Bank cancelled the surpluses of the allowance for loan losses in the income statement, as well as recognized the recovery of loans previously written-off against the heading "Allowance for loan losses" of the consolidated income statement; the amount of recovery of loans previously written-off is $1,884.

 

Note 25 - Administrative and promotional expenses

 

For the six-month periods ended June 30, 2019 and June 30, 2018, Administrative and promotional expenses are as follows:

 

    June 30,   June 30,
    2019   2018
         
Salaries and employee benefits   $ 7,843     $ 7,506  
Credit cards     167       152  
Professional fees     170       479  
Rents     1,217       1,170  
Advertising and communications     467       466  
Taxes other than income tax     988       898  
Information technology     1,747       1,430  
Depreciation and amortization     1,826       1,433  
IPAB contributions     1,660       1,520  
Securities transportation expenses     646       572  
Others     2,007       1,437  
                 
Total   $ 18,738     $ 17,063  

 

Page  41

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

Note 26 - Information by segments

 

As of June 30, 2019 and June 30, 2018, the Institution provides integrated financial services to its clients, which include banking and credit operations, brokerage services and fund management for retirement pensions.

 

The main segment information for the six-month period ended June 30, 2019, is as follows:

 

    June 30, 2019
                 
    Segments
                 
    Commercial
Bank 		  Corporate and Investment
Banking 		  Corporate Activities   Total Institution
                 
Financial margin   $ 28,819     $ 3,926     $ 292     $ 33,037  
Provisions for loan losses     (8,817 )     45       -       (8,772 )
                                 
Financial margin after provisions for loan losses     20,002       3,971       292       24,265  
                                 
Net commissions and fees     8,319       801       3       9,123  
Net gain on financial assets and liabilities     619       204       73       896  
Other operating income (expense)     (1,077 )     8       78       (991 )
Administrative and promotional expenses     (16,316 )     (2,245 )     (177 )     (18,738 )
                                 
Operating income     11,547       2,739       269       14,555  
                                 
Results of other long-term investment in shares     -       -       -       -  
                                 
Income before income taxes     11,547       2,739       269       14,555  
                                 
Incurred and deferred income taxes     (3,464 )     (822 )     630       (3,656 )
                                 
Net income   $ 8,083     $ 1,917     $ 899     $ 10,899  

 

 

Page  42

 

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

The main segment information for the six-month period ended June 30, 2018, is as follows:

 

    June 30, 2018
                 
    Segments
                 
         Corporate and        
    Commercial   Investment   Corporate   Total
    Bank   Banking   Activities   Institution
                 
Financial margin   $ 25,761     $ 2,892     $ 757     $ 29,410  
Provisions for loan losses     (9,133 )     (480 )     -       (9,613 )
                                 
Financial margin after provisions for loan losses     16,628       2,412       757       19,797  
                                 
Net commissions and fees     7,498       984       (151 )     8,331  
Net gain on financial assets and liabilities     581       706       50       1,337  
Other operating income (expense)     568       (3 )     (129 )     436  
Administrative and promotional expenses     (14,626 )     (2,034 )     (403 )     (17,063 )
                                 
Operating income     10,649       2,065       124       12,838  
                                 
Results of other long-term investment in shares     -       -       -       -  
                                 
Income before income taxes     10,649       2,065       124       12,838  
                                 
Incurred and deferred income taxes     (3,195 )     (620 )     875       (2,940 )
                                 
Net income   $ 7,454     $ 1,445     $ 999     $ 9,898  

 

Note 27 - Comprehensive risk management

 

Risk management is considered by the Institution as a competitive element of a strategic nature with the ultimate objective of maximizing the value generated for the shareholder. This management is defined, in a conceptual and organizational sense, as an integral treatment of the different risks (market, liquidity, counterpart, operational, legal and technological) assumed by the Institution in the development of its activities.

 

The Institution's management of the inherent risk of its operations is essential to understand and determine the behavior of its financial situation and the creation of a value in the long term.

 

Trading portfolios

 

To measure risk within a global approach, the Value at Risk (VaR) methodology is followed. The VaR is defined as the statistical estimate of the potential loss of value of a specific position, in a certain period of time and with a certain level of confidence. The VaR provides a universal measure of the level of exposure of different risk portfolios, allows the comparison of the level of risk assumed between different instruments and markets, expressing the level of each portfolio through a single figure in economic units. A more comprehensive explanation of this methodology is included in Note 39 to the Institution’s audited consolidated financial statements as of December 31, 2018.

 

Page  43

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

The VaR corresponding to the closing of the six-month period of 2019 was:

 

    June 30, 2019
    VaR (1)   % (*)
         
Negotiation Tables     101,965.94       0.84 %
Market Making     33,734.60       0.03 %
Proprietary Trading     11,373.89       0.01 %

 

    June 30, 2019
    VaR (1)   % (*)
         
Risk Factor     %          
Interest rate     41,076.38       0.03 %
Exchange rate     85,939.76       0.07 %
Variable income     1,695.76       0.00 %

 

(1) Figures in thousands of Mexican pesos

(*) % of VaR with respect to net capital

 

Asset and liability management

 

As part of the financial management performed by the Institution, the sensitivity of the financial margin or of the net interest margin (NIM) and the sensitivity of the market value of equity (MVE) of the different balance sheet headings is analyzed against interest rate variations. This sensitivity derives from the differences between the expiration and modification dates of interest rates generated in the different headings of assets and liabilities. The analysis is based on the classification of each heading sensitive to interest rates over time, depending on their dates of amortization, expiration or contractual amendment of the applicable interest rate.

 

The NIM and MVE sensitivity analysis of the six-month period of 2019 is as follows:

 

    Sensitivity NIM   Sensitivity MVE
                                 
    Apr 19   May-19   Jun 19   Average   Apr 19   May-19   Jun 19   Average
Balance in Mexican                                                                
Pesos (GAP)     37 %     31 %     41 %     36 %     72 %     71 %     56 %     66 %
Scenario     (100) bps       (100) pb       (100) bps       -       100 bps       100 bps       100 bps       -  
Balance in US Dollars                                                                
(GAP)     68 %     66 %     66 %     67 %     52 %     50 %     52 %     51 %
Scenario     (100) bps       (100) pb       (100) bps       -       (100) bps       (100) bps       (100) bps       -  

 

Liquidity risk

 

The Institution carries out liquidity risk management based on differences in the maturity of assets and liabilities, monitoring the maximum profiles of the time lag. This monitoring is based on analysis of the maturity of assets and liabilities, both contractual and management. The Institution makes an estimate for the maintenance of a sufficient quantity of liquid assets to guarantee a survival horizon for a minimum of days in a scenario of liquidity stress without resorting to additional sources of financing. Liquidity risk is limited in terms of a minimum period of days established for local currency, foreign currency and on a consolidated basis.

 

Page  44

 

Banco Santander México, S. A., Institución de Banca Múltiple

Grupo Financiero Santander México and Subsidiaries

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

for the semesters ended June 30, 2019 and 2018 and

for the year ended December 31, 2018

 

 

 

The following table shows the liquidity mismatch of our assets and liabilities with different maturities as of June 30, 2019:

 

                                        More than
    Total   1 day   1 week   1 month   3 months   6 months   9 months   1 year   5 years   5 years
                                         
Structural gap     (77,356 )     (26,811 )     9,143       (12,432 )     100,831       81,186       9,745       13,304       207,092       (459,414 )
Non-derivatives     (110,632 )     (26,811 )     9,075       (12,608 )     100,082       80,793       7,798       12,690       195,618       (477,268 )
Derivatives     33,275       -       69       176       749       393       1,947       615       11,474       17,854  

 

 

* * * * * *

 

 

Page  45