BBVA Compass Bancshares, Inc., a Sunbelt-based bank holding company (BBVA Compass), reported today net income of $184 million for the second quarter of 2018, a 17 percent increase from the $157 million earned during the second quarter of 2017. Return on average assets and return on average tangible equity(1) for the second quarter of 2018 were 0.83 percent and 9.05 percent, respectively.
Net income for the first six months of 2018 totaled $393 million, an increase of 41 percent from the $278 million earned during the first six months of 2017. Return on average assets and return on average tangible equity(1) for the first six months of 2018 were 0.90 percent and 9.77 percent, respectively.
“Capitalizing on the positive momentum we have built throughout our organization enabled us to deliver another strong quarter and achieve a new quarterly record in operating income,” said Onur Genç, president and CEO of BBVA Compass. “Revenue growth was strong and balanced as both net interest income and noninterest income posted double-digit gains. Newly funded loans in the quarter totaled more than $5.7 billion and on a year-to-date basis reached $10.1 billion, up 35 percent compared to a year ago. Our focus on being at the forefront of the digital transformation also continued with the recent launch of two new treasury management products - BBVA Compass RealTime ARP™ and BBVA Compass RealTime Positive Pay™ - that represent the first of their kind operating in real-time. Using technology to improve efficiency and provide customers with amazing experiences drives our innovative spirit.”
Genç: Capitalizing on the positive momentum we have built throughout our organization enabled us to deliver another strong quarter and achieve a new quarterly record in operating income
Total revenue for the quarter was $914 million, an increase of 10 percent from the second quarter of 2017 and 15 percent on an annualized basis from first quarter 2018 levels. Net interest income totaled $643 million, an increase of $58 million or 10 percent from the second quarter of 2017, and an annualized increase of 13 percent from first quarter 2018 levels. The percent net interest margin in the second quarter of 2018 was 3.30 percent, an increase of 19 basis points from a year ago and 3 basis points from the first quarter of 2018.
Noninterest income for the quarter totaled $270 million, an increase of 10 percent compared to the $246 million recorded in the second quarter of 2017. Growth was well diversified and many of our major fee-based businesses surpassed overall growth, led by card and merchant processing fees (+36 percent) and corporate and correspondent investment sales (+34 percent). The performance in investment banking and advisory fees (+23 percent), mortgage banking (+140 percent) and service charges on deposit accounts (+7 percent) was also noteworthy during the quarter. Maintaining strong expense controls also continued in the quarter with noninterest expenses rising 1 percent year-over-year and 2 percent on a year-to-date basis.
“With respect to balance sheet activity, loan growth accelerated in the quarter and, importantly, was fully supported by solid deposit generation,” noted Genç.
Genç: Loan growth accelerated in the quarter and, importantly, was fully supported by solid deposit generation
Total loans at the end of the second quarter of 2018 were $63.3 billion, an increase of 6 percent from $60.0 billion at the end of the second quarter of 2017. Commercial growth was paced by C&I lending (+8 percent) while consumer loan growth accelerated, driven by increased activity in direct consumer lending (+48 percent) and credit cards (+22 percent). Total deposits at the end of the second quarter of 2018 were $70.1 billion, a 7 percent increase from the $65.6 billion at the end of the second quarter of 2017. The loan to deposit ratio ended the quarter at 90 percent, down slightly from 91 percent a year ago.
Credit quality metrics were stable during the quarter. Nonperforming loans as a percentage of total loans were 1.11 percent, unchanged from first quarter 2018 levels and down 5 basis points from year-end 2017 levels. Net charge-offs as a percentage of average loans totaled 40 basis points in the quarter, down from 44 basis points in the first quarter of 2018 and 42 basis points in the second quarter of 2017. The allowance for loan losses as a percentage of total loans ended the quarter at 1.36 percent while the coverage ratio of nonperforming loans rose to 122 percent.
Total shareholder's equity at the end of the second quarter totaled $13.2 billion, a 2 percent increase from $13.0 billion at the end of the second quarter of 2017. The CET1 ratio rose to 11.97 percent(2) at the end of the second quarter of 2018, up 17 basis points from the end of the fourth quarter of 2017. Importantly, all of BBVA Compass’ regulatory capital ratios(2) significantly exceed the requirements under “well-capitalized” guidelines.
"BBVA Compass has been part of the Comprehensive Capital Analysis and Review for five years, and in each, our capital plan has received no-objection from the Federal Reserve," Genç said. "Our record in this area clearly signals the importance we place on maintaining a strong capital position to enable us to expand our client base, increase business activity with our customers, support the communities that we serve and continue on our transformation journey to meet the challenges and opportunities of 21st century banking.”
Income tax expense for the quarter totaled $58 million resulting in an effective tax rate of 24.0 percent compared to $57 million in the second quarter of 2017 resulting in an effective tax rate of 26.6 percent. Included in the current quarter is $11 million of additional income tax expense related to the correction of an error in prior period (primarily 2017) that resulted from an incorrect calculation of the proportional amortization of the company’s Low Income Housing Tax Credit investments. The company has evaluated the effect of this correction and concluded that no prior annual period is materially misstated nor is it material to interim or expected full year 2018 results.
During the second quarter, BBVA Compass announced the closing of a $1.15 billion senior notes offering by its wholly-owned subsidiary Compass Bank. The offering was completed in two tranches including: $450 million in aggregate principal amount of floating rate unsecured senior notes due 2021 (Floating Rates Notes), and $700 million in aggregate principal amount of 3.50 percent unsecured senior notes due 2021 (Fixed Rate Notes). The Floating Rate Notes were sold at a price of 100 percent of par and the Fixed Rate Notes were sold at a price of 99.704 percent of par. Additional information pertaining to our fixed income debt issuances can be found on the Investor Relations portion of our website at bbva.investorroom.com.
1 Return on average tangible equity and operating income are non-GAAP financial measures that we believe aid in understanding certain areas of our performance.
2 Regulatory capital ratios at June 30, 2018, are estimated.