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BNY Mellon's (BK) Q1 Earnings Beat Estimates, Expenses Up

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The Bank of New York Mellon Corporation’s (BK - Free Report) first-quarter 2018 earnings per share of $1.10 surpassed the Zacks Consensus Estimate of 97 cents. Also, the figure reflects an improvement of 32.5% from the prior-year quarter.

Shares of the company have gained more than 3% in pre-market trading. It appears that investors are encouraged with growth in its net interest revenues as well as fee revenues. Nonetheless, the stock’s price performance after the full day’s trading will give a better indication about investors’ sentiments.

Results benefited from an improvement in revenues along with provision benefits. Also, assets under management (AUM) reflected growth. However, rise in expenses acted as a headwind.

Net income applicable to common shareholders for the quarter was $1.14 billion, up from $880 million recorded in the prior-year quarter.

Revenues Improve, Costs Rise

Total revenues (GAAP basis) for the quarter increased 9.9% year over year to $4.19 billion. Also, the figure surpassed the Zacks Consensus Estimate of $4.05 billion.

Net interest revenues, on a fully taxable-equivalent basis, were $925 million, up 15% year over year. The rise was driven by higher interest rates and deposits, partly offset by rise in average long-term debt.

Also, net interest margin increased 9 basis points year over year to 1.23%.

Total fee and other revenues increased 8.3% from the prior-year quarter to $3.27 billion. The rise was driven by an increase in investment services fees, investment management and performance fees, foreign exchange and other trading revenues, and investment and other income.

Total non-interest expenses were $2.74 billion, increasing 3.7% year over year. This reflects an increase in all expense components, except professional, legal and other purchased services costs, bank assessment charges and amortization of intangible assets.

Strong Asset Position

As of Mar 31, 2018, AUM was $1.9 trillion, up nearly 8% year over year. This reflected higher market values, net inflows and the favorable impact of a weaker U.S. dollar (principally versus the British pound), partly offset by the sale of CenterSquare Investment Management and some other changes.

Moreover, assets under custody and administration of $33.5 trillion were up 9% year over year. Higher market values, the favorable impact of a weaker U.S. dollar and net new business largely drove the increase.

Credit Quality Improves

As of Mar 31, 2018, non-performing assets were $85 million, down from $107 million registered in the prior-year quarter end. Also, allowance for loan losses decreased 4.9% year over year to $156 million. Provision for credit losses was a benefit of $5 million, unchanged year over year.

Capital Position

As of Mar 31, 2018, common equity Tier 1 ratio (Standardized Basel 3 fully phased-in) was 11.7% compared with 11.5% as of Mar 31, 2017. Tier 1 Leverage ratio (Advanced approach) was 6.5%, up from 6.4% registered as of Mar 31, 2017.

Share Repurchase

During the reported quarter, BNY Mellon bought back 11 million shares for $644 million.

Our Viewpoint

BNY Mellon’s restructuring initiatives and inorganic growth strategy will go a long way in supporting its bottom line. Further, its strong global reach and gradually easing margin pressure are expected to support profitability in the long run.

However, concentration risk, arising from significant dependence on fee-based income, remains a major concern for the company in the near term.

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.

Among other major regional banks, SunTrust Banks, Inc. (STI - Free Report) and State Street Corp. (STT - Free Report) are slated to announce first-quarter 2018 results on Apr 20 while Fifth Third Bancorp (FITB - Free Report) is slated to release its quarterly numbers on Apr 24.

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