BBVA Compass Bancshares, Inc., a Sunbelt-based bank holding company (BBVA Compass), reported today net income of $196 million for the fourth quarter of 2018, a 276 percent increase from the $52 million earned during the fourth quarter of 2017. Included in fourth quarter 2017 results is income tax expense of approximately $121 million related to the revaluation of net deferred tax assets at the lower statutory tax rate mandated by the Tax Cuts and Jobs Act (non-cash charge). Excluding the impact of this item, the year-over-year increase in net income for the fourth quarter of 2018 compared to adjusted net income* of $173 million for the fourth quarter of 2017 was 13 percent.
Net income for the full-year 2018 totaled $763 million, an increase of 66 percent from the $461 million earned during the full-year of 2017. Excluding the impact of the non-cash charge, the year-over-year increase in net income for the full-year of 2018 compared to adjusted net income* of $582 million for the full-year of 2017 was 31 percent.
This performance was accomplished while making great strides in our digital transformation efforts…
“In 2018 BBVA Compass delivered record performance in many key financial metrics including new loan originations, total revenue, operating income and net income,” said Javier Rodríguez Soler, incoming president and CEO of BBVA Compass. “Equally important, this performance was accomplished while making great strides in our digital transformation efforts designed to drive new industry-leading product offerings, increase our digital sales capabilities and improve the customer experience. As we enter 2019 against a backdrop of economic uncertainty, we are confident that our vision and the culture we have instilled in our team members that empowers them to move our transformation forward will serve us well during various business cycles.”
Total revenue for the quarter was a record $953 million, an increase of 6 percent from fourth quarter 2017 levels. For the full-year 2018, total revenue was $3.7 billion (also a record), an increase of 9 percent from $3.4 billion in 2017. Fueling the growth was net interest income which totaled $682 million, up 13 percent from the fourth quarter of 2017 and 15 percent (annualized) on a linked quarter basis. The percent net interest margin in the fourth quarter was 3.37 percent, up 15 basis points from the fourth quarter of 2017 and 10 basis points from the third quarter of 2018. On a full-year basis, the percent net interest margin was 3.30 percent in 2018, an increase of 20 basis points from the comparable period in 2017.
Noninterest income for the quarter totaled $271 million, down 9 percent compared to the $297 million recorded in the fourth quarter of 2017. For the full-year of 2018, noninterest income totaled $1.1 billion, up 1 percent from prior year levels as several of our major fee-based businesses recorded positive performances. Particularly noteworthy were card and merchant processing fees (+37 percent), corporate and correspondent investment sales (+36 percent) and mortgage banking income (+87 percent). Conversely, weaker demand and economic conditions impacted investment banking and advisory fees (-25 percent) and money transfer income (-10 percent). Other income also recorded a decline in the quarter and for the year due in part to a decrease in syndication fees and other miscellaneous fees coupled with certain interchange fees being reclassified to card and merchant processing fees in 2018.
Overall expense growth was well contained as noninterest expense totaled $602 million, down 2 percent compared to the prior year quarter, and for the full-year of 2018 was up 2 percent. Revenue growth combined with the strong focus on expense management resulted in record operating income of $351 million in the quarter and $1.3 billion for the year, both represent a 23 percent increase over the respective prior year period.
Total loans at the end of the fourth quarter of 2018 were $65.3 billion, an increase of 6 percent from the $61.7 billion at the end of the fourth quarter of 2017.
The overall health of our loan portfolio remains strong.
“Loan production was brisk throughout our network as we funded a record $21.7 billion in customer loans during the year, an 18 percent increase over the prior year,” said Rodríguez Soler. “This enabled us to offset increased payoff activity as total commercial loans increased 5 percent in the aggregate, led by an 11 percent increase in commercial mortgages, while double-digit increases in credit cards, direct consumer lending and indirect auto lending resulted in an 8 percent increase in our consumer loan portfolio.”
Total deposits at the end of the fourth quarter of 2018 were $72.2 billion, a 4 percent increase from the $69.3 billion at the end of the fourth quarter of 2017. The loan to deposit ratio ended the quarter at 90 percent, up slightly from 89 percent a year ago.
“The overall health of our loan portfolio remains strong,” noted Rodríguez Soler. “And we are steadfast in our commitment to maintaining sound underwriting standards and reserve levels that adequately reflect the make-up of our loan portfolio, as well as economic conditions.”
Nonperforming loans as a percentage of total loans ended the year at 1.24 percent compared to 1.04 percent at the end of the third quarter of 2018 and 1.16 percent at the end of 2017. The uptick in nonperforming loans during the quarter was primarily due to three, unrelated commercial credits being placed on nonaccrual status. Net charge-offs as a percentage of average loans were 51 basis points for the full-year of 2018 compared to 47 basis points for the full-year of 2017. Provision expense for the year exceeded net charge-offs by more than $42 million while the allowance for loan losses as a percentage of total loans ended the year at 1.36 percent, relatively unchanged from prior year levels. Equally important, the coverage ratio of nonperforming loans at the end of the fourth quarter of 2018 was 109 percent compared to 117 percent at the end of the fourth quarter of 2017.
Total shareholder’s equity at the end of the fourth quarter totaled $13.5 billion, a 4 percent increase from $13.0 billion at the end of the fourth quarter of 2017. The CET1 ratio stood at 12.00 percent** at the end of the fourth quarter of 2018, up 20 basis points from the end of the fourth quarter of 2017. All of BBVA Compass’ regulatory capital ratios** continue to significantly exceed the requirements under “well-capitalized” guidelines.
*Adjusted net income, adjusted return on average assets and adjusted return on average tangible equity exclude the impact of the revaluation of net deferred tax assets mandated by the Tax Cuts and Jobs Act. These measures are non-GAAP financial measures we believe aid in understanding certain areas of our performance. The calculation of these measures is included on the page titled Non-GAAP Reconciliation.
**Regulatory capital ratios at December 31, 2018, are estimated.
FTE – fully taxable equivalent
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