Banco Bilbao Vizcaya Argentaria SA said Wednesday that provision expenses in its U.S. banking operations rose significantly in the third quarter after it reassessed collateral values on real estate in Florida.
The Madrid company said net income for its U.S. operations, which it inherited largely from its purchase of Compass Bancshares Inc. in Birmingham, Ala., declined 77.7% from the second quarter and 73.1% from the end of last year, to $28.9 million.
Comparisons with a year earlier were skewed because the Compass purchase closed in September of last year.
The loan-loss provision for the $59.8 billion-asset U.S. operation, now known as BBVA Compass, rose 74.6% from the second quarter and nearly tripled from a year earlier, to $184.9 million. Nonperforming loans rose 17.8% from a quarter earlier, to $1.03 billion.
Jose Ignacio Goirigolzarri, BBVA's president and chief operating officer, said during a third-quarter earnings conference call Wednesday that the higher credit costs followed a "repricing of collaterals" on real estate loans, especially in states such as Florida, where real estate values continue to decline.
The third quarter was "a special quarter" in terms of the provision, he said. "We're also feeling the impact of the environment."
BBVA said most of its U.S. operations, including those in Texas, Colorado, New Mexico, and Alabama, were performing in line or better than the country's overall economy, despite the ongoing issues in Arizona and Florida.
In particular, the company cited Jacksonville, Fla., where it has encountered deterioration in commercial real estate loans. Problems in that market drove collateral values lower, forcing a rise in the provision, BBVA said.
Core revenue in the United States fell 9.7% from the second quarter and 2.1% from the fourth quarter of last year, to $666.1 million. Net interest income was flat from the second quarter and fell 1.8% from the fourth quarter of last year, to $478.3 billion.
Deposits rose 0.8% from the second quarter, to $36.7 billion. Comparisons with the fourth quarter of last year were complicated because at that time BBVA included its unit in Mexico with its U.S. results in its balance sheet disclosures.
The U.S. loan portfolio grew 4.9% from a quarter earlier, to $42.7 billion.
BBVA also said that home equity balances rose 6%, and that loans in its corporate bank rose 6.7%. It cited an increase in municipal funding and energy sector business.
The company said that it believes declining real estate values could bottom out in the first half of next year.
It is putting a stronger emphasis on commercial and industrial loans to reduce the weight of commercial real estate, and it said credit scores in its loan portfolio are steadily improving.
"We're making an effort to attain commercial and retail clout," Mr. Goirigolzarri said. "We're benefiting from the complicated situation of some of our peers who are moving out."
Earnings at the $764 billion-asset Spanish parent rose 9.8% from the second quarter and fell 0.3% from the fourth quarter of last year, to $2.01 billion.
BBVA, which has been putting the systems of its Texas banks on to a platform inherited from Compass, said the integration with Laredo National Bank will be completed next month.
