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BNY Mellon (BK) Q3 Earnings Beat Estimates as Costs Decline

Zacks Equity Research

The Bank of New York Mellon Corporation’s BK third-quarter 2019 earnings per share of $1.07 surpassed the Zacks Consensus Estimate of 99 cents. Moreover, the figure reflects rise of nearly 1% from the prior-year quarter.

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

Net income applicable to common shareholders for the quarter under review was $1 billion, down 6.8% year over year.

Revenues Decline, Costs Drop

Total revenues (GAAP basis), excluding income from consolidated investment management funds, declined 5% year over year to $3.86 billion. The figure lagged the Zacks Consensus Estimate of $3.90 billion.

Net interest revenues, on a fully taxable-equivalent basis (non-GAAP basis), were $733 million, down 18.2% year over year. The decline resulted from lower non-interest bearing deposits, higher interest-bearing deposit and funding costs, and a lease-related impairment of $70 million.

Also, non-GAAP net interest margin (FTE basis) contracted 28 basis points year over year to 1.00%.

Total fee and other revenues declined 1.3% year over year to $3.13 billion. The decrease was due to a fall in all components of fee revenues, except for total investment services fees.

Total non-interest expenses were $2.59 billion, down nearly 5.4% 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 Sep 30, 2019, AUM was $1.9 trillion, up 2.7% 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 $35.8 trillion grew 3.8% 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 Sep 30, 2019, non-performing assets were $88 million, up from $81 million registered at the end of the prior-year quarter. Provision for credit losses in the quarter under review was a benefit of $16 million compared with a benefit of $3 million in the year-ago quarter. Allowance for loan losses declined 9.3% year over year to $127 million.

Capital Position Deteriorates

As of Sep 30, 2019, common equity Tier 1 ratio was 11.1% compared with 11.2% as of Sep 30, 2018. Tier 1 Leverage ratio was 6.6%, down from 7% registered as of Sep 30, 2018.

Capital Deployment Update

During the third quarter, BNY Mellon bought back 21.3 million shares for $981 million. Further, it paid dividends worth $294 million to common shareholders.

Our Viewpoint

The company’s restructuring initiatives and inorganic growth strategy will go a long way in supporting the bottom line. Moreover, solid asset balance is expected to support fee income growth. However, concentration risk, arising from significant dependence on fee-based income, remains a major near-term concern. Moreover, given the decline in interest rates amid the Federal Reserve’s accommodative monetary policy, its margins are likely to be negatively impacted.

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.

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 Oct 21 while Atlantic Capital Bancshares ACBI will report earnings on Oct 24.

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