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BNY Mellon Q3 Earnings Rise as Costs Fall, Revenues Up

Zacks Equity Research

The Bank of New York Mellon Corp.’s BK third-quarter 2015 earnings per share of 74 cents comfortably surpassed the Zacks Consensus Estimate of 71 cents, driven by a dip in costs and a slight improvement in the top line. Further, the figure compared favorably with the prior-year quarter adjusted earnings of 64 cents.
 

The Bank of New York Mellon Corporation - Earnings Surprise | FindTheBest

 

Lower expenses and a rise in net interest income largely drove better-than-expected results. However, a decrease in non-interest income, mainly due to the absence of several one-time gains recorded in the prior-year quarter, acted as a headwind. Deterioration in provision for loan losses acted as another undermining factor.

Net income applicable to common shareholders totaled $820 million, down from $1.07 billion in the prior-year quarter.

Quarterly Performance

Net revenue (non-GAAP) increased 1% year over year to $3.80 billion. However, the figure lagged the Zacks Consensus Estimate of $3.85 billion.

Net interest revenue, on a fully taxable equivalent basis, was $773 million, up 5% year over year. The increase mainly reflected higher securities and loans, and lower interest expense on deposits.

Moreover, net interest margin increased 4 basis points to 0.98%.

Total fee and other revenues plunged 21% year over year to $3.05 billion. This was mainly triggered by lower investment management and performance fees, distribution and servicing income as well as a drastic slump in investment and other income.

Total non-interest expenses (non-GAAP) amounted to $2.60 billion, down 3% year over year. This reflected a decline in all components except other expenses.

AUM was $1.63 trillion as of Sep 30, 2015, on par with the prior-year quarter level. This reflected higher market values, the Cutwater acquisition and net new business, which were offset by the unfavorable impact of a stronger U.S. dollar.

Moreover, assets under custody and administration totaled $28.5 trillion, up 1% year over year. Net new business was partially offset by the unfavorable impact of a stronger U.S. dollar and lower equity market values.

Asset Quality

BNY Mellon’s credit quality depicted a mixed picture. Non-performing assets fell 16% year over year to $123 million. Moreover, allowance for loan losses declined 5% to $181 million.

Provision for credit losses was $1 million compared with a benefit of $19 million recorded in the prior-year quarter.

Capital Ratios

BNY Mellon’s capital ratios deteriorated during the quarter. As of Sep 30, 2015, common equity tier-1 capital ratio (Standardized Basel 3 fully phased-in) came in at 9.9% compared with 10.6% as of Dec 31, 2014. Tangible common equity ratio stood at 6.2% compared with 6.5% as of Dec 31, 2014.

Share Repurchases

During the reported quarter, BNY Mellon bought back 15.8 million shares for $690 million. This was part of the company’s 2015 capital plan that includes a $3.1-billion share repurchase program.

Our Viewpoint

We believe BNY Mellon’s restructuring initiatives, cost-control measures and acquisitions will go a long way in supporting its bottom-line growth. Moreover, a sturdy capital position and enhanced capital deployment activities will continue to boost investors’ confidence in the stock. However, a low interest rate environment weighs on the company’s revenues slightly but persistently.

Currently, BNY Mellon carries a Zacks Rank #3 (Hold).

Performance of Other Major Regional Banks

BB&T Corp.’s BBT third-quarter 2015 earnings came in at 64 cents per share, down from the prior-year figure of 70 cents. The Zacks Consensus Estimate was pegged at 66 cents per share. Results were driven by a rise in revenues, which were supported by the Susquehanna acquisition. However, higher expenses as well as provision for loan losses acted as headwinds.

SunTrust Banks, Inc. STI third-quarter 2015 earnings came in at $1.00. The results included certain non-recurring items. The Zacks Consensus Estimate was pegged at 83 cents. Results were driven by higher non-interest income, lower provision for credit losses and an almost stable expense level. However, a strained net interest income was the downside.

Northern Trust Corp. NTRS is scheduled to announce results on Oct 21.

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