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BNY Mellon (BK) Q4 Earnings Beat Estimates as Revenues Rise

Zacks Equity Research

The Bank of New York Mellon Corporation’s BK fourth-quarter 2019 adjusted earnings per share of $1.01 surpassed the Zacks Consensus Estimate of 99 cents. Moreover, the figure reflects rise of nearly 2% from the prior-year quarter.

Results benefited from higher revenues and growth in assets under management (AUM). Moreover, a slight decline in expenses was a tailwind. However, the company’s credit quality was mixed.

After considering non-recurring items, net income applicable to common shareholders was $1.39 billion or $1.52 per share, up from $832 million or 84 cents per share recorded in the prior-year quarter.

The company recorded 2019 adjusted earnings per share of $4.02, which surpassed the Zacks Consensus Estimate of $3.99. However, the figure reflects a decline of 4.5% from the previous year. Net income applicable to common shareholders (GAAP basis) for the year was $4.27 billion or $4.51 per share, up from $4.10 billion or $4.04 per share recorded in 2018.

Revenues Improve, Expenses Decline

Total revenues (GAAP basis), excluding income from consolidated investment management funds, increased 18.1% year over year to $4.76 billion in the fourth quarter. The figure surpassed the Zacks Consensus Estimate of $4.68 billion.

For 2019, total revenues (GAAP basis), excluding income from consolidated investment management funds, increased marginally year over year to $16.41 billion. The figure beat the Zacks Consensus Estimate of $16.16 billion.

Quarterly net interest revenues, on a fully taxable-equivalent basis (non-GAAP basis), were $817 million, down 8.1% year over year. The decline resulted from lower non-interest bearing deposits and the impact of lower interest rates on the securities portfolio and other interest-earning assets.

Also, non-GAAP net interest margin (FTE basis) contracted 15 basis points year over year to 1.09%.

Total fee and other revenues increased 25.4% year over year to $3.95 billion. The rise was driven by improvement in total investment services fees, and investment and other income.

Total non-interest expenses were $2.96 billion, down nearly 1% year over year. This reflects a decrease in all expense components, except for staff expenses, software and equipment costs, sub-custodian and clearing costs, business development expenses, and bank assessment charges.

Solid Asset Position

As of Dec 31, 2019, AUM was $1.91 trillion, up 11% year over year. This reflects higher market values and the favorable impact of a weaker U.S. dollar, partly offset by net outflows.

Assets under custody and/or administration of $37.1 trillion grew 12.1% year over year, reflecting higher market values and client inflows.

Credit Quality: Mixed Bag

As of Dec 31, 2019, non-performing assets were $89 million, up from $79 million registered at the end of the prior-year quarter.

In the reported quarter, provision for credit losses was a benefit of $8 million, while the company did not record any provisions in the year-ago quarter. Allowance for loan losses declined 16.4% year over year to $122 million.

Mixed Capital Ratios

As of Dec 31, 2019, common equity Tier 1 ratio was 11.5% compared with 10.7% as of Dec 31, 2018. Tier 1 Leverage ratio was 6.6%, unchanged from the Dec 31, 2018 level.

Capital Deployment Update

During the fourth quarter, BNY Mellon bought back 22.2 million shares for $1.04 billion. Further, it paid out dividends worth $286 million to common shareholders.

Our Viewpoint

The company’s inorganic growth strategy, global reach and strong balance sheet position will go a long way in supporting the bottom line. Moreover, given a solid liquidity position, it will be able to continue enhancing shareholder value through efficient capital deployment activities. Also, expenses are expected to remain manageable in the upcoming quarters as the company eliminates unnecessary management layers and automates processes. However, lower interest rates will likely hamper its interest revenue growth to some extent in the near term.

The Bank of New York Mellon Corporation Price, Consensus and EPS Surprise
 

The Bank of New York Mellon Corporation Price, Consensus and EPS Surprise
The Bank of New York Mellon Corporation Price, Consensus and EPS Surprise

The Bank of New York Mellon Corporation price-consensus-eps-surprise-chart | The Bank of New York Mellon Corporation Quote

Currently, BNY Mellon carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Release Schedule of Other Banks

Among other banks, FB Financial Corp. FBK and Community Bank System CBU are scheduled to release quarterly results on Jan 21 and Jan 22, respectively, while Atlantic Capital Bancshares ACBI will report earnings on Jan 30.

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