Deposit costs, higher loss provisions eat into BBVA’s 2Q profit

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Higher deposit costs and a greater provision for loan losses ate into BBVA USA's second-quarter earnings.

The $93.5 billion-asset unit of the Spanish banking giant Banco Bilbao Vizcaya Argentaria said Wednesday that second-quarter net income fell 13% to $160 million from the same quarter last year. In a press release, the company’s leadership blamed a tough rate environment and emphasized controlled expenses and revenue growth.

“The flattening of the yield curve, market volatility and expectations that the Federal Reserve will take action to lower interest rates this year continue to place pressure on net interest margin and we have taken steps to better position ourselves for this type of environment,” President and CEO Javier Rodriguez Soler said in a press release.

Total revenue at BBVA USA, based in Birmingham, Ala., rose 3% to $944 million. Net interest income climbed 3% to $660 million, while the net interest margin narrowed 6 basis points to 3.24%. Meanwhile, interest paid on deposits rose 74% to $202.5 million.

Total loans increased slightly to $63.4 billion. BBVA said that during the quarter it completed the sale of $1.2 billion in commercial loans, and excluding the sale, loan balances would have grown 2%.

BBVA USA increased its provision for loan losses by 70% to $155 million in the second quarter. Nonperforming loans represented 1.26% of total loans, compared with 1.11% a year earlier.

Net charge-offs more than doubled to $143.4 million because BBVA USA charged off three commercial credits during the second quarter. The company did not give any further detail about those charge-offs.

Total deposits rose 3.5% to $72.6 billion. Noninterest bearing deposits fell 3.7% to $20.6 billion, while interest bearing deposits rose 8% to $52 billion.

Noninterest income grew 5% to $284 million. Service charges on deposit accounts, card and merchant processing fees, and asset management fees all rose from the year-ago quarter, while investment banking and advisory fees and corporate and correspondent investment sales income fell.

Noninterest expenses rose 3% to $598.3 million, mostly due to a 3% increase in salaries, benefits and commissions.

The parent company also reported earnings Wednesday and said that strong growth in its Mexican operations helped offset sluggishness in Turkey and Spain, where banks are also grappling with low interest rates. Profits in its Mexican operations rose 4.4% to 660 million euros, or about $734 million in U.S. dollars, driven by net interest income growth of 16%.

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Regional banks Earnings Deposits Net interest margin BBVA