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BNY Mellon (BK) Beats on Q2 Earnings, Fee Income Improves Y/Y

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Bank of New York Mellon Corporation’s BK second-quarter 2021 earnings per share of $1.13 surpassed the Zacks Consensus Estimate of $1.01. The bottom line represents a rise of 12% from the prior-year quarter.

Results gained from provision benefit and higher fee income. Growth in asset balances was another tailwind. However, a decline in net interest income and higher expenses were the undermining factors.

Net income applicable to common shareholders was $991 million, up 10% from the prior-year quarter.

Revenues Decline, Expenses Rise

Total revenues declined 1% year over year to $3.96 billion. The top line beat the Zacks Consensus Estimate of $3.91 billion.

Net interest revenues, on a fully taxable-equivalent (FTE) basis (non-GAAP basis), were $648 million, down 17% year over year. The fall was mainly due to lower interest rates on interest-earning assets, partially offset by benefits from low deposit and funding rates, higher deposits and lower debt balance.

Non-GAAP net interest margin (FTE basis) contracted 21 basis points (bps) year over year to 0.67%.

Total fee and other revenues rose 3% to $3.32 billion. The increase was driven by higher investment services fees, and investment management and performance fees, partly offset by decline in foreign exchange revenues and financing-related fees.

Total non-interest expenses were $2.78 billion, up 3%. The rise was attributable to the unfavorable impact of a weaker U.S. dollar, investments in efficiency and growth efforts, and higher revenue-related expenses.

Asset Position Strong

As of Jun 30, 2021, assets under management (AUM) were $2.3 trillion, up 18% year over year. The rise was mainly driven by higher market values, the favorable impact of a weaker U.S. dollar and net inflows.

Assets under custody and/or administration of $45 trillion grew 21%, reflecting higher market values, net new business and the favorable impact of a weaker U.S. dollar.

Credit Quality Improving

Allowance for loan losses as a percentage of total loans was 0.42%, down 13 bps from the prior-year quarter. The company recorded a provision benefit of $86 million against provision for credit losses of $143 million in the year-ago quarter.

As of Jun 30, 2021, non-performing assets were $90 million, up 2% year over year.

Solid Capital Ratios

As of Jun 30, 2021, common equity Tier 1 ratio was 12.6%, on par with prior-quarter level. Tier 1 Leverage ratio was 6.0%, up from 5.8% on Mar 31, 2021.

Capital Deployment Updates

During the reported quarter, BNY Mellon repurchased 12.8 million shares for $618 million.

Concurrent with the earnings release, BNY Mellon announced quarterly dividend of 34 cents per share, representing 9.7% hike from the prior payout. The dividend will be paid out on Aug 9 to shareholders of record as on Jul 27.

It must be noted that in late June, following the clearance of this year’s stress test, BNY Mellon announced its plan to hike quarterly dividend, effective third-quarter 2021. The company also authorized the buyback of up to $6.0 billion worth of shares through the fourth quarter of 2022.

Our View

BNY Mellon’s global reach, strong balance sheet position and a solid AUM balance will go a long way in supporting profitability. However, near-zero interest rates will likely continue to hurt revenues 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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Major Banks

Bank of America’s BAC second-quarter 2021 earnings of $1.03 per share handily beat the Zacks Consensus Estimate of 77 cents. The bottom line compared favorably with 37 cents earned in the prior-year quarter.

PNC Financial PNC pulled off a second-quarter 2021 positive earnings surprise of 42.4% on substantial reserve release. Adjusted earnings per share of $4.50 surpassed the Zacks Consensus Estimate of $3.16.

Large reserve releases, solid investment banking performance and modest rise in loan demand drove JPMorgan’s JPM second-quarter 2021 earnings of $3.78 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.05.


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