BBVA takes write-down on digital bank purchase

BBVA Compass Bancshares said Wednesday that it remains committed to its digital banking efforts despite another impairment charge on a 2014 acquisition that contributed to a 2 percent drop in fourth-quarter earnings.

"As with most investments, return is delivered in the medium to long term," the company said in an email.

BBVA Compass' net income was $89.4 million for the fourth quarter, down 2 percent from $91.6 million during the same period in 2015. That drop is partly due to an impairment charge related to its purchase of Simple, a digital bank without branches. This accounting move suggests the bank overpaid based on what Simple is currently earning.

Excluding impairment charges, net income for the three-month period ending Dec. 31 was $149 million, up 37 percent from $109 million during the fourth quarter a year earlier.

Net income for all of 2016 was $371.5 million, down 27 percent from 2015.

Like many banks, BBVA Compass Bancshares was affected by the collapse in oil prices. But the fourth quarter showed improvements as nonperforming loans dropped from 1.91 percent of total loans during the third quarter to 1.63 percent at the end of the fourth quarter.

The bank continued setting aside less money for problem loans. Provision for loans losses fell 42 percent to $37.6 million in the fourth quarter, down from $65.1 million in the third quarter.

"We are encouraged by the momentum of our results during the second half of the year, particularly with respect to revenue growth in the fourth quarter," Onur Genç, president and CEO of BBVA Compass, said in a news release. Total revenue increased 5 percent year-over-year for the fourth quarter.

Jeff Davis, Nashville-based managing director of the Financial Institutions Group for Mercer Capital, said rising oil prices have helped banks based in Texas and Oklahoma.

"Excluding the Simple write-down, I don't think it's a real surprise that the earnings are up this quarter," Davis said.

BBVA Compass Bancshares has taken impairment charges on Simple each year since the acquisition. The $60 million charge reported Wednesday brings the total to $89.5 million.

Davis said acquiring technology companies can have challenges. Often those companies are expected to produce value in the future, but there's little current cash flow and earnings.

John Heasley, executive vice president for the Texas Bankers Association, said banks are trying to keep abreast of new technologies as more non-bank lenders enter the traditional banking industry.

"You're seeing a lot of banks making exploratory purchases of some of these smaller startups," he said. "I think some have been more successful than others."

It's too soon to tell if the purchase price of Simple will be justified, said Dan Bass, managing director of investment banking for bank advisory firm Performance Trust Capital Partners.

"Long term, they may look back and say the price is great," Bass said.

BBVA Compass has roughly 1,300 employees and more than 75 branches in the Houston region. Its holding company, BBVA Compass Bancshares, is headquartered in a branded building near Houston's Galleria. Its subsidiary, BBVA Compass, remains based in Birmingham, Ala.