BNY Mellon (BK) Q3 Earnings Beat, Revenues & AUM Increase Y/Y
Bank of New York Mellon Corporation’s BK third-quarter 2023 adjusted earnings of $1.27 per share surpassed the Zacks Consensus Estimate of $1.14. The bottom line reflects a rise of 5% from the prior-year quarter.
Results have been primarily aided by a rise in net interest revenues, marginally higher fee revenues and lower expenses. The assets under management (AUM) balance witnessed a rise, which was another major positive for the company. However, the credit quality was relatively weak in the quarter.
Net income applicable to common shareholders (GAAP basis) was $956 million or $1.22 per share, up from the $319 million or 39 cents per share recorded in the year-ago quarter. Our estimate for net income was $836.6 million.
Revenues Improve, Expenses Decline
Total revenues increased 2% year over year to $4.37 billion. The top line surpassed the Zacks Consensus Estimate of $4.30 billion.
Net interest revenues, on a fully taxable-equivalent (FTE) basis, were $1.02 billion, up 9% year over year. The rise reflected higher interest rates, partially offset by changes in balance sheet size and mix.
The net interest margin (FTE basis) expanded 13 basis points (bps) year over year to 1.18%. Our estimate for NIM was 1.15%.
Total fee and other revenues increased marginally year over year to $3.36 billion. The rise was driven by an increase in investment services fees, financing-related fees, and distribution and servicing fees. Our estimate for the same was $3.32 billion.
Total non-interest expenses (GAAP basis) were $3.09 billion, declining 16% year over year. Almost all cost components increased, except for sub-custodian and clearing charges, distribution and servicing costs, and costs related to the amortization of intangible assets. Also, in the reported quarter, the company did not record any expense related to goodwill impairment. Our estimate for expenses was $3.15 billion.
Asset Balances Improve
As of Sep 30, 2023, AUM was $1.82 trillion, up 3% year over year. The rise reflected the favorable impacts of a weaker U.S. dollar and higher market values, partially offset by the divestiture of Alcentra. Our estimate for AUM was $1.90 trillion.
Assets under custody and/or administration of $45.7 trillion increased 8% year over year, primarily reflecting higher market values, client inflows, the favorable impact of a weaker U.S. dollar and net new business.
Credit Quality: A Mixed Bag
The allowance for loan losses, as a percentage of total loans, was 0.32%, up 9 bps from the prior-year quarter. In the reported quarter, the company recorded a provision for credit losses of $3 million against a provision benefit of $30 million in the year-ago quarter. We had projected provisions of $3.7 million.
However, as of Sep 30, 2023, non-performing assets were $48 million, down 55% year over year.
Capital Position Improves
As of Sep 30, 2023, the common equity Tier 1 ratio was 11.4%, up from 10% as of the Sep 30, 2022 level. Tier 1 leverage ratio was 6.1%, up from 5.4% as of Sep 30, 2022.
Our Take
Elevated non-interest expenses due to inflation and technology upgrades are expected to keep hurting BNY Mellon’s bottom line to some extent in the near term. Concentration risk due to the company’s higher dependence on fee-based revenues is worrisome.
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 #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Banks
Citigroup Inc.’s C third-quarter 2023 earnings per share (excluding divestiture-related impacts) of $1.52 outpaced the Zacks Consensus Estimate of $1.26.
In the quarter, Citigroup witnessed a rise in revenues, driven by higher revenues in the Institutional Clients Group, as well as the Personal Banking and Wealth Management segments. The higher cost of credit was a spoilsport for C.
Support from higher interest rates, the First Republic Bank deal, robust consumer and commercial banking businesses and solid loan balance drove JPMorgan’s JPM third-quarter 2023 earnings to $4.33 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.89.
The results included net investment securities losses and legal expenses. After excluding these, JPM’s quarterly earnings were $3.94 per share.
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