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BNY Mellon (BK) Q2 Earnings Beat Estimates as Costs Decline

Zacks Equity Research

The Bank of New York Mellon Corporation’s BK second-quarter 2019 earnings per share of $1.01 surpassed the Zacks Consensus Estimate of 94 cents. However, the figure reflects a decline of 1.9% from the prior-year quarter.

Results benefited from a decline in expenses along with growth in assets under management (AUM). Moreover, the company’s capital position improved in the quarter. However, a decline in revenues was a headwind.

Net income applicable to common shareholders for the quarter under review was $969 million, down from $1.1 billion recorded in the prior-year quarter.

Revenues Decline, Costs Drop

Total revenues (GAAP basis), excluding income from consolidated investment management funds declined 5.1% year over year to $3.91 billion. The figure marginally surpassed the Zacks Consensus Estimate of $3.90 billion.

Net interest revenues, on a fully taxable-equivalent basis (non-GAAP basis), were $806 million, down 12.5% year over year. This decline was due to lower non-interest bearing deposits, and loan balances and higher deposit rates, partly offset by higher asset yields.

Also, non-GAAP net interest margin (FTE basis) contracted 14 basis points year over year to 1.12%.

Total fee and other revenues declined 3.1% year over year to $3.11 billion. This decrease was due to a fall in all components of fee revenues except for total investment services fees.

Total non-interest expenses were $2.65 billion, down nearly 3.6% year over year. This reflects a decrease in all expense components, except for professional, legal and other purchased services, software and equipment, and sub-custodian and clearing costs.

Solid Asset Position

As of Jun 30, 2019, AUM was $1.8 trillion, up 2.1% year over year. This reflects higher market value, partly offset by net outflows and the unfavorable impact of stronger U.S. dollar.

Assets under custody and/or administration of $35.5 trillion increased 5.7% year over year, reflecting higher market values and net new businesses, partly offset by the unfavorable impact of stronger U.S. dollar.

Credit Quality: Mixed Bag

As of Jun 30, 2019, non-performing assets were $186 million, up from $82 million registered at the end of the prior-year quarter. Provision for credit losses in the quarter under review was a benefit of $8 million compared with a benefit of $3 million in the year-ago quarter. Allowance for loan losses decreased 6.4% year over year to $146 million.

Capital Position Improves

As of Jun 30, 2019, common equity Tier 1 ratio was 11.2% compared with 11% as of Jun 30, 2018. Tier 1 Leverage ratio was 6.8%, up from 6.7% registered as of Jun 30, 2018.

Capital Deployment Update

During the second quarter, BNY Mellon bought back 15.3 million shares for $750 million. Further, it paid dividends worth $270 million to common shareholders.

Our Viewpoint

While the company’s restructuring initiatives and inorganic growth strategy will go a long way in supporting its bottom line; concentration risk, rising from significant dependence on fee-based income, remains a major near-term concern. Moreover, higher expenses (mainly due to rise in investment-related costs, and litigation and restructuring charges) are likely to hamper bottom-line growth to some extent.

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 #5 (Strong Sell).

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 Jul 22 while Atlantic Capital Bancshares ACBI will report earnings on Jul 25.

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