BBVA reports stronger earnings
Bank ‘cautiously optimistic,’ but energy volatility still a concern
BBVA Compass Bancshares reported another quarter of improved earnings, prompting experts to say, cautiously, that the bank has weathered the oil price slump.
“I think they’ve come through the storm — absent a crash in oil prices,” said Jeff Davis, a Nashvillebased managing director of the Financial Institutions Group for Mercer Capital.
BBVA Compass Bancshares on Thursday reported record secondquarter earnings of $157 million, up 29 percent from the same period last year.
During the first three months of this year, the bank reported its first year-overyear quarterly uptick in net income since mid-2015.
“Our results in the first two quarters of 2017, particularly the second quarter, have been encouraging,” a BBVA Compass spokesperson said in an email. “And we remain cautiously optimistic for the remainder of 2017 given current economic conditions.”
Experts cited several reasons for the uptick in second-quarter earnings. BBVA is making more money on its loans, thanks to higher interest rates, and it’s not having to increase what it pays for deposit accounts, such as savings accounts.
Likewise, its loans dropped 4 percent yearover-year, meaning BBVA Compass didn’t have to borrow higher-cost funds (from entities such as the Federal Home Loan Banks) to cover its loans, said Dan Bass, managing director of investment banking for bank advisory firm Performance Trust Capital Partners.
The bank spokesper-
also said that BBVA Compass reduced balances in higher-priced time deposits, such as CDs, while continuing to grow its base of noninterest-bearing deposits. Non interestbearing deposits represent 32 percent of the bank’s total deposits, and they’re “extremely valuable” when interest rates are on the rise.
Finally, BBVA Compass set aside less money for problem loans. The $45.3 million in provision for loan losses was roughly half of what the bank reported during the second quarter of 2016.
“I think a lot of issues are behind them,” Bass said of banks with ties to the energy sector. “But if (oil prices) go down again, it could have another wave of energy issues .”
Davis added that weaker borrowers, those that were highly leveraged with debt before oil prices crashed, have already declared bankruptcy or merged with other companies.
“I think the borrowing base is a much stronger group of companies today,” Davis said.
BBVA Compass Bancshares reported nonperforming loans of $820.7 millionat the end of the quarter, down from $1.1 billion on June30,2016.
The bank’s energy portfolio was 4.9 percent of total loans during the second quarter of this year compared with 6 percent during the same period in 2016.
Banks continued is closing their energy loans becauseinvestors and analysts keep asking, Bass said. They will probably continue reducing their energy lending until “people are confident we’ve hit the bottom,” he said. “And maybe energy prices are going up, or it’s no longeranissue.”
BBVA Compass Bancshares is headquartered in a branded building near Houston’s Galleria. Its subsidiary, BBVA Compass, is based in Birmingham, Ala.
The bank has 77 Houston area branches and roughly 1,400 local employees.