BBVA Compass Bancshares, Inc. reported its second quarter 2016 results today, with net income topping $162 million for the first half of 2016 compared to $286 million earned during the first six months of 2015. Return on average assets and return on average tangible equity(1) for the first six months of 2016 were 0.35 percent and 4.27 percent, respectively.
The holding company for BBVA’s U.S. subsidiary, BBVA Compass, reported that its net income for the second quarter was $123 million compared to $39 million earned during the first quarter of 2016 and $140 million for the second quarter of 2015. Return on average assets and return on average tangible equity(1) for the second quarter of 2016 were 0.53 percent and 6.45 percent respectively.
“Our results for the second quarter reflect solid loan growth, robust deposit generation, improved growth from our fee-based businesses and strong expense management discipline,” said Manolo Sánchez, chairman and CEO of BBVA Compass. “At the same time, we are focused on being at the forefront of the digital change sweeping our industry so we can better serve our clients. Euromoney recently recognized us as the Best Digital Bank in North America, in fact, a testament to our vision and the culture we’ve instilled in which everyone on the team has the power to move our transformation forward.”
Sánchez said the low interest rate environment is hampering revenue growth efforts industrywide, and noted that BBVA Compass is focused on targeted balance sheet growth. He said, “Average total loans for the first half of the year reached $62.3 billion, an increase of $3.0 billion or 5 percent, and we funded more than $7.6 billion in customer loans. Loan growth was fully funded by deposit generation as average deposits totaled $68.0 billion, an increase of $5.6 billion or 9 percent, led by a 10 percent increase in average noninterest bearing deposits.”
Average total loans for the first half of the year reached $62.3 billion, an increase of $3.0 billion or 5 percent
Total revenue for the bank increased 1 percent from prior year levels for both the three- and six-month periods. Targeted loan growth coupled with strong deposit growth resulted in a 2 percent increase in net interest income during both periods. The percent net interest margin ended the quarter at 2.66 percent, down 3 basis points from second quarter 2015 levels and 7 basis points from first quarter 2016 levels.
Noninterest income for the quarter totaled $257 million, a decrease of 2 percent compared to $261 million recorded in the second quarter of 2015. In comparison to first quarter 2016 levels, noninterest income increased $12 million as the growth was widespread between most major fee-based businesses. Improved activity levels and market conditions during the quarter were a primary driver of the rebound in investment banking and advisory fees, and corporate and correspondent investment sales. Disciplined expense management helped contain expenses as total noninterest expenses declined $51 million compared to first quarter 2016 levels and were flat compared to second quarter 2015 levels.
Credit quality metrics remained sound despite continued pressure on the energy portfolio. Provision expense for the quarter totaled $87 million compared to $113 million in the first quarter of 2016 and exceeded net charge-offs by $21 million. The allowance for loan losses as a percentage of total loans ended the quarter at 1.37 percent, up from 1.32 percent at the end of the first quarter this year and 1.20 percent in the second quarter a year ago. Nonperforming loans as a percentage of total loans were 1.76 percent compared to 1.41 percent at the end of the first quarter, primarily reflecting the additional reclassification of certain energy credits.
Provision expense for the quarter totaled $87 million compared to $113 million in the first quarter of 2016
“BBVA Compass is steadfast in its commitment to maintaining sound underwriting standards and a strong risk profile, and the proactive actions we have taken thus far to address our energy portfolio reflect this commitment,” Sánchez said. “Total energy loans declined $419 million from first quarter levels and now represent 6 percent of our total loan portfolio, down from 6.7 percent at the end of the first quarter. At the same time, all of our other loan portfolios continue to perform within our expectations. Excluding energy loans, our nonperforming loan ratio was 0.77 percent and net charge-offs were 27 basis points.”
Sánchez also said the bank’s performance in the recent stress tests are an indication of its strong capital position, ability to generate retained earnings and the capacity to absorb significant stress.
Total shareholder’s equity ended the second quarter of 2016 at $12.7 billion, a 4 percent increase from $12.3 billion at the end of the second quarter of 2015. Each of the company’s regulatory capital ratios remain significantly above “well-capitalized” guidelines. The total capital ratio ended the quarter at 13.66 percent(2) compared to 13.29 percent a year ago and the CET(2) ratio rose to 10.79 percent(2).
During the second quarter, BBVA Compass completed the purchase of four subsidiaries — Bancomer Transfer Services, Bancomer Payment Services, Bancomer Foreign Exchange and Bancomer Financial Services — from BBVA Bancomer USA, Inc. that engage in money transfer services. BBVA Bancomer USA, Inc. is a wholly owned subsidiary of BBVA Bancomer, S.A. (Mexico) and ultimately a wholly-owned subsidiary of BBVA. This transaction was accounted for as a merger of entities under common control and, accordingly, prior period financial information has been retrospectively adjusted to include their historical activity.
Euromoney named BBVA Compass the Best Digital Bank in North America, and noted its embrace of disrupters and cited its collaborations with Dwolla, FutureAdvisor and eCredable.
In recognizing BBVA Compass as the Best Digital Bank in North America, global finance magazine Euromoney cited the strides the bank has made in mobile and lauded its efforts to transform its technology and culture in pursuit of exceptional client experiences. The publication also noted the bank’s embrace of disrupters and cited its collaborations with Dwolla, FutureAdvisor and eCredable.
1 Average tangible equity is a non-GAAP financial measure that we believe aids in understanding certain areas of our performance. The calculation of this measure is included on the page titled Non-GAAP Reconciliation.
2 Regulatory capital ratios at June 30, 2016, are estimated.