BNY Mellon (BK - Free Report) reported a positive earnings surprise of 7.6% in fourth-quarter 2018. Adjusted earnings per share of 99 cents surpassed the Zacks Consensus Estimate of 92 cents. The figure reflects an improvement of 8.8% from the prior-year quarter.
Results benefited from an improvement in net interest revenues, lower operating expenses and no provisions. However, decline in total fee and other income, and disappointing assets position were the undermining factors.
After considering non-recurring items, net income applicable to common shareholders for the quarter under review was $832 million, down 26% from the prior-year quarter.
Adjusted earnings per share for 2018 increased 18% year over year to $4.21. Net income available to common shareholders was $4.1 billion or $4.04 per share compared with $3.9 billion or $3.72 per share recorded in 2017.
Revenues Rise, Expenses Decline
Total revenues (GAAP basis) for the reported quarter grew 7% year over year to $4 billion. Notably, on non-GAAP basis, revenues declined 1% from the prior-year quarter.
For 2018, total revenues (GAAP basis) increased 5% year over year to $16.4 billion.
Net interest revenues, on a fully taxable-equivalent basis (non-GAAP basis), were $889 million, up 3% year over year. The upside was primarily driven by higher interest rates and absence of lease related adjustment recorded in the prior-year quarter, partly offset by lower non-interest-bearing deposits.
Also, net interest margin expanded 8 basis points year over year to 1.24%.
Total fee and other revenues (non-GAAP basis) declined 1% year over year to $3.15 billion. Increase in investment services fees, foreign exchange and other trading revenues was more than offset by lower Investment management and performance fees, and financing-related fees, along with reduced investment and other income.
Total non-interest expenses were $2.98 billion, down 1% year over year. This reflects a decrease in all expense components, except for professional, legal and other purchased services, software and equipment, net occupancy, sub-custodian and clearing.
Dismal Asset Position
As of Dec 31, 2018, AUM was $1.7 trillion, down 9% year over year. This reflects lower market values, net outflows, divestiture of CenterSquare Investment Management and unfavorable impact of a stronger U.S. dollar.
Moreover, assets under custody and administration of $33.1 trillion decreased 1% year over year, reflecting lower market values and unfavorable impact of a strong U.S. dollar.
Credit Quality Improves
As of Dec 31, 2018, non-performing assets were $79 million, down from $90 million registered at the end of the prior-year quarter. In addition, allowance for loan losses decreased 13% year over year to $140 million.
There was no provision for credit losses in the quarter under review compared to a benefit of $6 million in the year-ago quarter.
As of Dec 31, 2018, common equity Tier 1 ratio was 10.6% compared with 10.3% as of Dec 31, 2017. Tier 1 Leverage ratio was 6.6%, up from 6.4% registered as of Dec 31, 2017.
During the reported quarter, BNY Mellon bought back 28.9 million shares for $1.37 billion.
BNY Mellon’s restructuring initiatives and inorganic growth strategy will go a long way in supporting its bottom line. In addition, the company’s strong global reach and improving net interest margin will likely support profitability over the long run.
However, concentration risk, rising from significant dependence on fee-based income, remains a major near-term concern.
Currently, BNY Mellon carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Banks
Washington Federal’s (WAFD - Free Report) first-quarter fiscal 2019 (ended Dec 31) earnings came in at 65 cents per share, surpassing the Zacks Consensus Estimate of 61 cents. The figure also reflected year-over-year growth of 10.2%.
Synovus Financial’s (SNV - Free Report) fourth-quarter earnings of 92 cents per share lagged the Zacks Consensus Estimate of 94 cents. However, the reported figure came in 27.8% higher than the prior-year tally.
Hancock Whitney Corporation’s (HWC - Free Report) fourth-quarter 2018 operating earnings per share of $1.12 missed the Zacks Consensus Estimate of $1.13. The reported figure, however, came in 30.2% higher than the year-ago tally.
(We are reissuing this article to correct a mistake. The original article, issued on January 16, 2019, should no longer be relied upon.)