BBVA USA reports third quarter 2020 results
BBVA USA Bancshares, Inc., a Sunbelt-based bank holding company (BBVA USA), reported today net income of $166 million for the third quarter of 2020 compared to a net loss of $124 million in the second quarter of 2020 and net income of $183 million in the third quarter of 2019. Return on average assets and return on average tangible equity(1) for the third quarter of 2020 were 0.63 percent and 7.32 percent, respectively.
For the first nine months of 2020, the company reported a net loss of $2.2 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 loss(1) for the first nine months of 2020 was $10 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: “During the third quarter we delivered solid results while continuing to successfully navigate the challenges to our customers, communities and our employees brought about by the Covid-19 pandemic."
“During the third quarter we delivered solid results while continuing to successfully navigate the challenges to our customers, communities and our employees brought about by the Covid-19 pandemic,” said Javier Rodríguez Soler, president and CEO of BBVA USA.
Total revenue for the third quarter was $927 million, up 21 percent (annualized) from second quarter 2020 levels and down 2 percent from third quarter 2019 levels. Net interest income in the quarter totaled $642 million compared to $612 million in the second quarter of 2020 and $641 million in the third quarter of 2019. The percent net interest margin for the third quarter of 2020 was 2.68 percent compared to 2.66 percent in the second quarter of 2020 and 3.07 percent in the third quarter of 2019. The decline in the percent net interest margin from a year ago reflects a lower interest rate environment, the subsequent repricing of variable rate loans, offset in part, by efforts to reduce deposit costs.
Noninterest income (excluding securities gains) for the quarter totaled $285 million compared to $269 million in the second quarter of 2020 and $300 million for the third quarter of 2019. While down from a year ago, the increase in noninterest income on a linked quarter basis was driven by service charges on deposit accounts (+$10 million) and card and merchant processing fees (+$5 million) reflecting higher levels of business activity, albeit still below pre-pandemic levels. Other noninterest income increased on a linked quarter basis, primarily as a result of a valuation adjustment to investments held by our small business investment company that negatively impacted second quarter 2020 levels. While investment banking and advisory fees and mortgage banking declined from second quarter levels, both business lines reflected double digit increases compared to the year ago quarter.
During the third quarter no gains or losses were recorded on investment securities while $3 million of investment securities gains were recorded in the second quarter of 2020 and $21 million was recorded in the third quarter of 2019.
Total noninterest expense was $596 million compared to $579 million in the second quarter of 2020 and $599 million in the third quarter of 2019. While salaries, benefits and commissions increased on a linked quarter basis, compared to the year ago quarter the increase was only 1 percent. Equipment expense also increased on a linked quarter basis and was up 8 percent compared to a year ago. Professional services were flat compared to the second quarter of 2020 while up 7 percent compared to the third quarter of 2019. Operating income(1) in the quarter totaled $331 million, up 34 percent (annualized) from the second quarter of 2020 and down 9 percent from the third quarter 2019 levels.
Total loans at the end of the third quarter of 2020 were $66.4 billion, down 12 percent (annualized) from $68.5 billion at the end of the second quarter of 2020 and up 5 percent from the $63.5 billion at the end of the third quarter of 2019. Commercial loans associated with the energy sector dropped to $2.5 billion at the end of the third quarter of 2020 compared to $3.0 billion at the end of the second quarter of 2020. During the quarter, newly funded loans totaled $3.5 billion bringing the total for the first nine months of 2020 to $15.8 billion, a 41 percent increase compared to the same time period a year ago.
Deposit growth continued in the quarter with total deposits ending the quarter at $86.4 billion, up 4 percent (annualized) from the second quarter of 2020 and up $12.8 billion or 17 percent compared to the third quarter of 2019. Low-cost deposits were a key driver of deposit growth as noninterest bearing deposits ended the quarter at $26.8 billion, up 13 percent (annualized) on a linked quarter basis and up $5.8 billion or 28 percent compared to the third quarter of 2019.
As a result of deposit growth outpacing loan growth, the loan to deposit ratio ended the third quarter of 2020 at 76.9 percent compared to 80.2 percent at the end of the second quarter of 2020 and 86.3 percent at the end of the third quarter of 2019. BBVA USA continues to maintain a strong liquidity position with the LCR at 144 percent, unchanged from the levels recorded in both the second quarter of 2020 and the third quarter of 2019.
After two quarters of increased provision expense recorded to primarily address the impact of the COVID-19 pandemic and corresponding impact on economic conditions, provision for credit losses totaled $151 million in the quarter and exceeded net charge-offs by $50 million. Net charge-offs as a percentage of average total loans were 59 basis points in the quarter compared to 72 basis points in the second quarter of 2020 and 110 basis points in the third quarter of 2019. The allowance for loan losses as a percentage of total loans at the end of the quarter rose to 2.73 percent compared to 2.57 percent at the end of the second quarter of 2020 and 1.49 percent in the year ago quarter.
Nonperforming loans as a percentage of total loans ended the third quarter of 2020 at 2.00 percent, up from the 1.21 percent at the end of the second quarter of 2020 and 1.14 percent at the end of the third quarter of 2019. The increase in nonperforming loans on a linked quarter basis was primarily attributed to an increase in nonaccrual loans associated with the commercial loan portfolio (+$271 million), as well as increases in the commercial real estate – mortgage (+$158 million) and residential real estate – mortgage (+$35 million) portfolios. The coverage ratio of nonperforming loans ended the quarter at 136 percent compared to 211 percent at the end of the second quarter of 2020 and 131 percent at the end of the third quarter of 2019.
Total shareholder’s equity at the end of the third quarter of 2020 totaled $11.4 billion compared to $11.3 billion at the end of the second quarter of 2020 and $14.1 billion at the end of the third quarter of 2019. Total tangible shareholder’s equity(1) totaled $9.0 billion at the end of the third quarter of 2020 compared to $8.9 billion at the end of the second quarter of 2020 and $9.1 billion at the end of the third quarter of 2019. The CET1(2) ratio ended the quarter at 12.79 percent compared to 12.18 percent at the end of the second quarter of 2020 and 12.89 percent at the end of the third quarter of 2019. All of BBVA USA’s regulatory capital ratios(2) continue to exceed the requirements under “well-capitalized” guidelines.
During the quarter, Global Finance recognized BBVA USA as one of the World's Best Corporate/Institutional Digital Banks in North America for 2020, naming us a winner in the subcategories of Best Mobile Adaptive Site and Best Mobile Banking App.