Fitch Affirms BBVA Compass Bancshares, Inc.'s L-T IDR at 'BBB+'; Outlook Stable

Fitch Ratings has affirmed the Issuer Default Rating (IDR) for BBVA Compass Bancshares, Inc. (BBVAC) at 'BBB+' and the bank's Viability Rating (VR) at 'bbb'. The Rating Outlook is Stable.

This action follows Fitch's recent rating action on BBVAC's parent company, Banco Bilbao Vizcaya Argentaria SA (BBVA). Refer to Fitch's press release titled 'Fitch Affirms Santander and BBVA at 'A-'; Outlook Stable' (dated May 22, 2015) for additional information on the BBVA rating action.

A full list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

IDRS AND SENIOR DEBT

BBVAC's IDR reflects the higher of its support-driven IDR or its standalone rating, the VR. BBVAC' support-driven IDR is 'BBB+', while its stand-alone rating or VR is 'bbb'. BBVAC's institutional support-driven IDR is higher than its VR, benefitting from uplift from its parent, which reflects the parent's ability and propensity to provide support to BBVAC. BBVAC accounts for approximately 9% of consolidated parent assets and revenues.

VR

BBVAC's VR, which reflects the company's intrinsic creditworthiness absent any extraordinary support, was affirmed at 'bbb' primarily reflecting the company's good capital position, and solid asset quality profile. The ratings are somewhat constrained by a relatively weaker earnings profile than other large regional banks. Further, BBVAC has reported very strong loan growth trends, which may result in asset quality deterioration in the future, especially under a higher rate environment.

Capital remains good, with a high Tier I common ratio (under Basel I) of 10.7%, though down 43bps from a year ago. This compares to the large regional bank peer median of approximately 10.5%. BBVAC received no objection to its capital plan under last year's and this year's CCAR, which included a relatively modest dividend up-streamed to its parent. The dividend, along with significant balance sheet growth and a partial phase-out of trust preferred securities capital inclusion, drove the year-over-year decline in capital ratios. Fitch expects prudent capital management given very strong loan growth trends.

Asset quality continues to improve, and remains better than peer averages. Fitch notes that NPAs, inclusive of accruing troubled debt restructurings, compare favorably to large regional bank peer averages, at about half the average for the 14 large regional banks. BBVAC's NCOs in 2014 were slightly better than the large regional bank peer average (excluding COF), while its crisis-era experience was roughly in line with peer averages. Fitch attributes some of the better relative recent performance to the geographic make-up of its loan portfolio.

Over the last several years, BBVAC has reported very strong loan growth, well in excess of large regional bank peer averages banks and GDP, which may be vulnerable to deterioration under a slowing economy or higher interest rates. In both 2014 and 2013, total loans increased 12%, primarily due to very strong growth in C&I, residential real estate, indirect automobile lending, and CRE. This is well above the average for loan growth for the large regional bank peer group.

This level of loan growth raises concerns as to any relaxation in underwriting standards and whether the company is receiving the appropriate risk-adjusted return in an extremely competitive lending environment. While there are no immediate asset quality concerns, Fitch will be monitoring the growth in these portfolios for any asset quality deterioration.

BBVAC reported $3.6 billion of energy loans as of YE14 or roughly 6% of total loans. This exposure is somewhat higher than other large regional banking peers, with the exception of Comerica Inc. and Zions Bancorporation. Given BBVAC's concentration in Texas and 20 year history in energy lending, it is expected its exposure would be somewhat higher than most peers. There may be elevated loan losses in this portfolio depending on the duration and severity of oil prices. Further, the state's economy has benefitted greatly from the energy boom, and as previously mentioned, could be vulnerable to a slowdown or recession depending on the severity and duration of oil price movements. However, it is not anticipated that falling oil prices will be a negative ratings driver at this point.

BBVAC's reliance on short-term borrowings has been decreasing over the past several years and is on the low end of the peer group. Bank liquidity is considered roughly in line with peer banks, though its loan to deposit ratio is on the high end of the peer group.

BBVAC has reported very strong deposit trends recently. Depositor behavior under a higher interest rate environment is uncertain at this time, though it may have implications for the banking industry, as well as BBVAC, depending on the pace and trajectory of interest rate movements. As such, Fitch will monitor BBVAC's liquidity profile if and when interest rates begin to meaningfully increase for any liquidity implications.

BBVAC manages its liquidity separately from BBVA and does not rely on its parent for any funding. Holding company liquidity is very strong, with a significant amount of cash to cover nominal interest payments on just $100 million of trust-preferred securities. Fitch expects BBVAC will increase its capital returns to the parent in the future, though it is assumed it will be in moderate amounts, governed by U.S. regulatory stress testing.

BBVAC's earnings performance continues to lag the average for large regional banks in the U.S. and is considered a key Viability Rating constraint by Fitch. BBVAC ROA in 2014 was 60bps, as compared to the peer average (excluding BBVAC) of approximately 1.1%. BBVAC's balance sheet still includes approximately $5bn in pushed down goodwill from the 2007 BBVA acquisition. If this amount is excluded, the return on tangible assets improves to 65bps but still well below peer averages.

Part of BBVAC's weaker relative margin is due to its much higher cost of interest-bearing deposits than peers. While deposit costs have been generally declining for the entire industry, the cost of interest-bearing deposits for BBVAC has trended up slightly year-over-year. While this has impacted the company's NIM, BBVAC has been able to significantly grow savings accounts balances and jumbo time deposits. Fitch notes these deposits may be more vulnerable to deposit flight in a higher rate environment if their balances have only increased due to more attractive pricing.

SUPPORT RATING AND SUPPORT RATING FLOOR

BBVAC is strategically important to, but not considered a core subsidiary of BBVA by Fitch. BBVAC's IDR reflects the higher of its support-driven IDR or VR. BBVAC's support-driven IDR has historically been one notch below BBVA, reflecting Fitch's view that BBVAC is strategically important to BBVA, though not core. Since BBVAC's support reflects institutional support, there is no Support Rating Floor assigned.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Subordinated debt and other hybrid securities issued by BBVAC and by various issuing vehicles are all notched down from BBVAC's or its bank subsidiaries' VR in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles.

HOLDING COMPANY

BBVAC's IDR and VR are equalized with those of Compass Bank, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries.

LONG- AND SHORT-TERM DEPOSIT RATINGS

BBVAC's uninsured deposit ratings are rated one notch higher than the company's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default.

RATING SENSITIVITIES

IDRS AND SENIOR DEBT

Since BBVAC's ratings and Outlook are correlated with those of BBVA, changes in BBVA's ratings may result in changes to BBVAC's IDRs and Outlook. Additionally, if BBVAC becomes less strategically important to BBVA, its IDR could be reviewed for rating action. However, given BBVAC's VR is at 'bbb,' downward rating actions would be limited to likely just one notch as the BBVAC's VR would become the anchor for its IDR.

VR

Over the near term, Fitch envisions limited VR upgrade potential. However, over the medium to long-term,

BBVAC's VR could be upgraded with improving earnings performance, combined with the continuation of moderating asset quality and the maintenance of capital at appropriate levels.

Fitch remains somewhat concerned regarding the strong loan growth BBVAC has reported recently, especially as it compares to peer averages. In general, Fitch views loan growth that significantly outpaces GDP and peer growth somewhat skeptically as it raises concerns about adverse selection, underwriting standards, and the appropriate risk-return trade-offs.

SUPPORT RATING AND SUPPORT RATING FLOOR

In the event Fitch views BBVAC as no longer strategically important to BBVA, its support rating could be downgraded. If the support rating were downgraded, BBVAC's VR would likely become the anchor rating for IDR.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

These ratings are all primarily sensitive to any changes in the VR of BBVAC.

HOLDING COMPANY

Should BBVAC's holding company begin to exhibit signs of weakness, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of Compass Bank.

LONG- AND SHORT-TERM DEPOSIT RATINGS

The ratings of long- and short-term deposits issued by BBVAC and its subsidiaries are primarily sensitive to any change in BBVAC's long- and short-term IDRs.

Fitch has affirmed the following ratings:

BBVA Compass Bancshares, Inc.

--Long-term IDR at 'BBB+'; Outlook Stable.

--VR at 'bbb';

--Support at '2';

--Short-term IDR at 'F2'.

Compass Bank

--Long-term IDR at 'BBB+'; Outlook Stable;

--Long-term deposits at 'A-';

--Senior unsecured at 'BBB+'.

--Short-term IDR at 'F2';

--VR at 'bbb';

--Short-term deposits at 'F2';

--Support at '2';

--Subordinated debt at 'BBB-'.

TexasBanc Capital Trust I

--Preferred stock at 'BB-'

Additional information is available on www.fitchratings.com

Applicable Criteria

Global Bank Rating Criteria (pub. 20 Mar 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863501

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985454

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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