BBVA USA reports second quarter 2020 results

For the first six months of 2020, the company reported a net loss of $2.4 billion. Included in the first quarter of 2020 was a non-cash, goodwill impairment charge of $2.2 billion that reflected the drastic change in macroeconomic conditions and forecasts brought about by the COVID-19 pandemic and subsequent decline in interest rates and oil prices. Excluding the impact of this non-cash charge, the adjusted net loss¹ for the first six months of 2020 was $177 million, further reflecting the decline in interest rates and higher provision expense necessary to reflect the economic and business disruption caused by the pandemic.

Rodríguez Soler: "The COVID-19 pandemic certainly represents an unprecedented time in global history but it has not deterred our team at BBVA USA from continuing to meet our customers’ needs..."

“The COVID-19 pandemic certainly represents an unprecedented time in global history but it has not deterred our team at BBVA USA from continuing to meet our customers’ needs while also providing support to the communities in which we operate,” said Javier Rodríguez Soler, president and CEO of BBVA USA.

“Despite the challenging economic environment, our second quarter results continued to build on the momentum over the past two quarters in terms of customer activity, driven by solid loan growth and robust deposit generation at significantly lower rates. While we continue to navigate the challenges ahead, and work to systematically reopen our branch lobbies while protecting the safety of our employees and customers, we firmly believe this increased activity, coupled with our solid capital and strong liquidity positions, will enable us to continue aiding our customers’ during this time while also building long-term value.”

Total Loans

Total loans at the end of the second quarter of 2020 were $68.5 billion, up 5 percent (annualized) from $67.7 billion at the end of the first quarter of 2020 and up 8 percent from the $63.4 billion at the end of the second quarter of 2019. The increase in total loans was fueled by an increase in the commercial loan portfolio, primarily as a result of customer draws and small business loans originated under the SBA’s PPP. Under the PPP, a key small business component of the CARES Act, BBVA USA funded approximately $3.3 billion in small business loans, processing more than 22,000 applications, providing loans to nearly 3,100 borrowers who did not previously have a relationship with BBVA USA and impacting an estimated 360,000 jobs.

To support and expedite the demand for this program, BBVA USA utilized its digital capabilities to build an on-line app in just three days. As a result, the bank was able to begin funding loans just three days after the program opened.

During the second quarter, approximately $7.7 billion of customer loans were funded, a 121 percent increase from the second quarter a year ago. Excluding the impact of the PPP, newly funded customer loans were 26 percent ahead of the pace set last year. For the first six months of 2020, newly funded loans totaled more than $12.3 billion, up 84 percent compared to the first six months of 2019, and up 35 percent excluding the impact of the PPP.

Deposits

Deposit generation in the quarter was robust and reflected customers, both commercial and consumer, maintaining higher levels of liquidity given the uncertainty related to the COVID-19 pandemic, reduced spending, and aided somewhat by government stimulus programs/payments. Total deposits ended the quarter at $85.4 billion, up $8.2 billion or 42 percent (annualized) from the first quarter of 2020, and up $12.8 billion or 18 percent compared to the second quarter of 2019. Noninterest bearing deposits totaled $26.0 billion, up $5.6 billion or 109 percent (annualized) on a linked quarter basis, and up $5.3 billion or 26 percent compared to the second quarter of 2019. Growth in interest bearing transaction accounts was similarly robust, ending the quarter at $51.3 billion, up $5.0 billion or 43 percent (annualized) on a linked quarter basis, and up $14.3 billion or 39 percent compared to the second quarter of 2019.

With deposit growth outpacing loan growth, the loan to deposit ratio ended the quarter at 80.2 percent compared to 87.6 percent at the end of the first quarter of 2020 and 87.3 percent at the end of the second quarter of 2019. At the same time, BBVA USA continues to maintain a very strong liquidity position with the LCR at 144 percent, unchanged from first quarter 2020 levels.

Shareholder's Equity

Total shareholder’s equity at the end of the second quarter of 2020 totaled $11.3 billion compared to $11.4 billion at the end of the first quarter of 2020 and $13.9 billion at the end of the second quarter of 2019. The CET1² ratio ended the second quarter of 2020 at 12.18 percent compared to 11.97 percent at the end of the first quarter of 2020 and 12.57 percent at the end of the second quarter of 2019. The decrease in shareholder’s equity from the prior year reflects the non-cash goodwill impairment charge recorded in the first quarter of 2020, which does not impact tangible capital levels and therefore has no impact on regulatory capital and regulatory capital ratios. All of BBVA USA’s regulatory capital ratios² continue to exceed the requirements under “well-capitalized” guidelines.

Revenue

While increased business activity in terms of loans and deposits was positive during the quarter, revenue growth was challenged by the impact of the drastic decrease in interest rates, decreased other business activity due to the lockdown and higher provision for credit losses necessary given the ongoing adverse macroeconomic environment and corresponding forecasts as a result of the COVID-19 pandemic.

Total revenue for the second quarter of 2020 was $881 million, down 10 percent (annualized) from first quarter 2020 levels and down 7 percent from second quarter 2019 levels. Net interest income in the quarter totaled $612 million compared to $589 million in the first quarter of 2020 and $660 million in the second quarter of 2019. The percent net interest margin in the second quarter of 2020 was 2.66 percent compared to 2.80 percent in the first quarter of 2020 and 3.24 percent in the second quarter of 2019. The decline in the percent net interest margin reflects the sudden decline in interest rates and subsequent repricing of variable rate loans.

Noninterest Income

Noninterest income (excluding securities gains) for the quarter totaled $269 million compared to $315 million in the first quarter of 2020 and $284 million in the second quarter of 2019. The decrease in noninterest income was primarily the result of decrease in service charges on deposit accounts driven by a decline in consumer spending activity, which also impacted card and merchant processing fees, as well fee waivers implemented by the bank to offer relief to those customers impacted by the COVID-19 pandemic. The decrease in other income was primarily the result of valuation adjustment to investments held by our small business investment company. At the same time, investment banking and advisory fees, corporate and correspondent investment sales and mortgage banking recorded positive growth both on a linked quarter basis and compared to the year ago quarter.

During the second quarter of 2020, investment securities gains totaled $3 million compared to $19 million in the first quarter of 2020. No investment securities gains were recorded in the second quarter of 2019.

Expenses

Overall, expenses were well contained in the quarter as total noninterest expense totaled $579 million. On a linked quarter basis (excluding goodwill impairment) noninterest expense declined 29 percent (annualized) and represented a decrease of 3 percent compared to the second quarter of 2019. The decline in noninterest expense was primarily due to a decrease in salaries, benefits and commissions, marketing expenses and lower travel expenses, offset in part by an increase in provisions for unfunded commitments recorded in other noninterest expense. Operating income¹ in the quarter totaled $305 million, up 7 percent (annualized) from the first quarter of 2020 and down 12 percent from second quarter 2019 levels.

Provision for credit losses for the quarter was $539 million compared to $357 million in the first quarter of 2020 and $155 million in the second quarter of 2019. The increase in provision expense reflects the decline in forecasted economic conditions and the expected future losses that could result as a result of the ongoing COVID-19 pandemic. While oil prices have recovered from the drastic drop in the first quarter of 2020, demand continues to lag supply during the COVID-19 pandemic. At the end of the second quarter, our energy portfolio totaled $3.0 billion compared to $3.4 billion at the end of the first quarter of 2020.

Nonperforming Loans

Nonperforming loans as a percentage of total loans ended the second quarter of 2020 at 1.21 percent, up from the 1.09 percent at the end of the first quarter of 2020 and down from 1.26 percent at the end of the second quarter of 2019. The increase in nonperforming loans on a linked quarter basis was attributable to the commercial loan portfolio, primarily in the energy sector. Provision for loan losses in the quarter totaled $526 million, exceeding net charge-offs by $403 million. Net charge-offs as a percentage of average total loans were 72 basis points in the quarter compared to 69 basis points in the first quarter of 2020 and 90 basis points in the second quarter of 2019.

With the increase in provision for loan losses, the allowance for loan losses as a percentage of total loans at the end of the quarter rose to 2.57 percent compared to 2.00 percent at the end of the first quarter of 2020 and 1.54 percent at the end of the second quarter of 2019. The coverage ratio of nonperforming loans also increased to 211 percent at the end of the quarter compared to 183 percent at the end of the first quarter of 2020 and 123 percent at the end of the second quarter of 2019.

Corporate Updates

During the quarter, BBVA USA announced that it had received approval to open 15 new branches across Texas, the bank's largest market in its U.S. footprint. The branches, set to open in 2021, underscore the bank's 5-year strategic plan launched in early 2020, which aims to help clients improve their financial health. Adding branches at a time when digital transactions are increasing demonstrates the bank's belief that the branch format naturally facilitates face-to-face relationships between bankers and their customers, building a deep understanding of their financial needs.

The announcement came within a week of BBVA USA launching its new mobile banking app, Mobile 9.0, and expanded transaction detail screen in mobile and online banking, both aimed at leveraging the bank's technology expertise to provide a better experience and more transparency and control for customers.

¹ Operating income and adjusted net loss 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.

² Regulatory capital ratios at June 30, 2020, are estimated.