BBVA Compass reports first quarter results

Rodríguez Soler: Our focus remains on being at the forefront of the digital transformation in our industry and using technology to improve efficiency and provide our customers with amazing experiences.

“Our results for the first quarter of 2019 continue to reflect positive operating leverage as we delivered record operating income in the quarter,” said Javier Rodríguez Soler, president and CEO of BBVA Compass. “Revenue growth was driven by a double digit increase in net interest income and expense growth was well contained. Loan growth was modest but, most importantly, was fully funded by deposit growth as we continued to successfully grow and deepen our deposit relationships. While provision levels in the quarter were elevated, the overall health of our loan portfolio remains strong. As we continue to navigate the challenging environment, our focus remains on being at the forefront of the digital transformation in our industry and using technology to improve efficiency and provide our customers with amazing experiences.”

Total revenue for the quarter was $932 million, an increase of 6 percent from the first quarter of 2018. Net interest income totaled $683 million, an increase of $60 million or 10 percent from the first quarter of 2018, and an annualized increase of 1 percent on a linked quarter basis. The percent net interest margin in the first quarter of 2019 was 3.41 percent, an increase of 14 basis points from a year ago and 4 basis points on a linked quarter basis. “The increase in net interest income reflects higher short-term market rates and growth in higher-yielding loans, partially offset by higher funding costs as customers continue to migrate into interest bearing accounts and the competitive landscape for deposits,” noted Rodríguez Soler.

Noninterest income for the quarter totaled $258 million, relatively unchanged from first quarter of 2018 levels. Fee-based businesses reported positive growth including card and merchant processing fees (+16 percent), service charges on deposit accounts (+5 percent) and money transfer income (+6 percent). Conversely, interest rate sensitive businesses and weaker demand impacted corporate and correspondent investment sales (-43 percent), investment banking and advisory fees (-21 percent) and investment services sales (-11 percent). During the quarter investment securities gains, net totaled $9.0 million.

Expense growth was well managed as noninterest expense totaled $582 million, a 3 percent increase compared to first quarter 2018 levels and down 13 percent on a linked quarter annualized basis. As a result of this positive operating leverage, operating income* for the quarter totaled a record $359 million, an increase of $41 million or 13 percent from the first quarter of 2018, and the efficiency ratio improved 147 basis points to 61.58 percent compared to 63.05 percent in the first quarter of 2018.

In terms of balance sheet growth, total loans for the first quarter of 2019 were $65.0 billion, an increase of 4 percent from the $62.3 billion at the end of the first quarter of 2018. On a reported basis, total commercial loans were flat versus a year ago. However, during the first quarter approximately $1.2 billion of commercial loans were transferred to loans held for sale. Adjusting for the impact of this transfer, the year-over-year increase in commercial loans was 3 percent. Total consumer loans grew 6 percent, led by increased activity in direct consumer lending (+36 percent), credit cards (+27 percent) and indirect auto lending (+14 percent). Although year-over-year growth in these portfolios was at double-digit rates, compared to previous quarters the pace of growth slowed, particularly compared to the fourth quarter of 2018.

Total deposits at the end of the first quarter of 2019 were $74.4 billion, a 6 percent increase from the $69.9 billion at the end of the first quarter of 2018. Noninterest bearing demand deposits declined 6 percent as customers continue to shift from demand deposits into interest bearing accounts. As a result, interest bearing transactions accounts (savings, money market and interest bearing checking) increased 11 percent compared to a year ago. Deposit growth at $4.4 billion fully funded loan growth of $2.7 billion. Consequently, the loan to deposit ratio ended the quarter at 87 percent compared to 89 percent a year ago.

Rodríguez Soler: While loan growth is important, maintaining sound underwriting standards and a strong risk profile is one of our highest priorities.

“While loan growth is important, maintaining sound underwriting standards and a strong risk profile is one of our highest priorities,” noted Rodríguez Soler. “During the quarter we recorded a meaningful increase in provision expense to address isolated, one-off issues in our commercial and consumer loan portfolios.”

Nonperforming loans as a percentage of total loans ended the quarter at 1.34 percent compared to 1.24 percent at the end of the fourth quarter of 2018 and 1.11 percent at the end of the first quarter of 2018. The increase in nonperforming loans during the quarter was primarily due to a handful of unrelated commercial credits. Net charge-offs as a percentage of average loans were 63 basis points in the quarter, down from 68 basis points in the fourth quarter of 2018 and up from the 44 basis points recorded during the first quarter of 2018. The increase in net charge-offs over the past two quarters was primarily the result of increased charge-offs in certain consumer portfolios reflecting growth in those portfolios as well as the further seasoning of newly established consumer direct portfolio product offerings. Provision expense for the quarter was $182 million, exceeding net charge-offs by $81 million. As a result, the allowance for loan losses as a percentage of total loans at the end of the quarter was 1.52 percent, up from 1.36 percent at the end of the fourth quarter of 2018 and 1.34 percent at the end of the first quarter of 2018. The coverage ratio of nonperforming loans ended the quarter at 111 percent.

Total shareholder's equity at the end of the first quarter of 2019 totaled $13.7 billion, a 4 percent increase from $13.1 billion at the end of the first quarter of 2018. The CET1 ratio stood at 12.34 percent** at the end of the first quarter of 2019, up 26 basis points from the end of the first quarter of 2018. All of BBVA Compass’ regulatory capital ratios** continue to significantly exceed the requirements under “well-capitalized” guidelines.

During the first quarter, BBVA Compass was named by Global Finance magazine as top treasury and cash management provider for the Southwest in the category of Best US Regional Middle Market providers. BBVA Compass was recognized for the annual award from Global Finance for its customer service, competitive pricing, product innovation and the extent to which the bank differentiated itself from competitors.

BBVA Compass also announced that the Federal Reserve Bank of Atlanta rated it "Outstanding" for CRA performance for its most recent examination period encompassing 2015 to 2017. The bank achieved "excellent performance" for community development lending and investments, and "high satisfactory" for service.

The evaluation cited several reasons for BBVA Compass' overall 'Outstanding' rating, including the bank's excellent responsiveness to credit needs and the distribution of loans among borrowers of different income levels and businesses of different revenue sizes. In addition, BBVA Compass demonstrated leadership in making community development loans and investments, as well as leadership in providing community development services.

*Return on average tangible equity and operating income 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 March 31, 2019, are estimated.
FTE – fully taxable equivalent