The Bank of New York Mellon Corp.’s (BK) fourth-quarter 2014 adjusted earnings per share of 58 cents came 7% above the year-ago adjusted figure. However, earnings missed the Zacks Consensus Estimate of 60 cents, breaking the streak of seven consecutive earnings beats.
For full-year 2014, adjusted earnings per share stood at $2.39, up 5% year over year. However, this lagged the Zacks Consensus Estimate of $2.44.
A pressurized top line with a fall in net interest revenue led to the weak results. However, higher fee and other revenues, effective cost control and steady growth in assets under management (AUM) were the growth drivers.
Net income applicable to common shareholders (adjusted for the previously disclosed benefit of a tax carryback claim, net of litigation and restructuring charges) totaled $667 million, up 6% year over year. The year-ago quarter earnings were adjusted for a loss on an equity investment.
For 2014, net income applicable to common shareholders (adjusted for certain non-recurring items) rose 4% year over year to $2.8 billion.
Quarterly Performance
BNY Mellon’s non-GAAP total revenue fell 3% year over year to $3.67 billion. Moreover, it missed the Zacks Consensus Estimate of $3.78 billion.
Net interest revenues on a fully taxable equivalent basis stood at $726 million, down 7% year over year. The fall was mainly due to lower asset yields and higher premium amortization on agency mortgage backed securities, which was partially offset by a change in assets mix and higher average interest-earning assets. Moreover, net interest margin descended 18 basis points to 0.91%.
Total fee and other revenues rose 4% year over year to $2.94 billion, triggered by an increase in investment services fees as well as foreign exchange and other trading revenue. These were, nevertheless, partially offset by a reduction in investment management and performance fees.
Total non-interest expenses (non-GAAP) amounted to $2.65 billion, down 5% year over year. The decline was primarily driven by a reduction in business development costs, total staff expenses as well as other expenses. However, these were partly mitigated by higher professional, legal and other purchased services as well as sub-custodian costs.
AUM grew 8% year over year to $1.71 trillion as of Dec 31, 2014. Moreover, assets under custody and administration totaled $28.5 trillion, increasing 3% year over year. Higher equity market values and net new business led to the improvement in both, partially offset by the unfavorable impact of a stronger U.S. dollar.
Asset Quality
BNY Mellon’s credit quality continued to improve during the quarter. Non-performing assets fell 18% year over year to $128 million. Moreover, allowance for loan losses declined 9% to $191 million.
Further, provision for credit losses plunged 83% year over year to $1 million.
Capital Ratios
BNY Mellon’s capital ratios represented a mixed picture. At the end of the reported quarter, the company’s common equity tier 1 capital ratio (Standardized Basel 3 Transition) came in at 10.8% compared with 10.6% as of Dec 31, 2013. Tangible common equity ratio stood at 6.7% compared with 6.8% at the end of the prior-year quarter.
Capital Deployment Activities
During the reported quarter, BNY Mellon bought back 11.0 million shares for $432 million.
Also, the bank declared a quarterly common dividend of 17 cents per share along with the earnings release. The dividend will be paid on Feb 13 to shareholders of record as of Feb 3.
Our Viewpoint
The restructuring initiatives and acquisitions undertaken by BNY Mellon will likely result in improved revenue generation going forward. Moreover, a sturdy capital position and steady capital deployment activities will continue to boost investors’ confidence. Further, the company’s cost control initiatives are expected to eventually ease the pressure on the top line.
Nonetheless, a persistently low interest rate environment and slow economic recovery continue to slightly weigh on the company’s profitability.
Currently, BNY Mellon carries a Zacks Rank #3 (Hold).
Performance of Other Major Regional Banks
Among other major regional banks, BB&T Corp. (BBT) posted fourth-quarter 2014 earnings per share of 76 cents, which outpaced the Zacks Consensus Estimate of 73 cents on the back of lower expenses.
KeyCorp (KEY) reported fourth-quarter 2014 adjusted earnings per share of 29 cents surpassing the Zacks Consensus Estimate of 26 cents, driven by a rise in non-interest income and lower expenses.
Further, SunTrust Banks, Inc. (STI) posted fourth-quarter 2014 adjusted earnings of 88 cents per share, beating the Zacks Consensus Estimate of 80 cents supported by strong growth in loans and deposits.
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