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BNY Mellon (BK) Q3 Earnings Beat Estimates, Costs Flare Up

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The Bank of New York Mellon Corporation (BK - Free Report) reported a positive earnings surprise of 1.9% in third-quarter 2018. Earnings per share of $1.06 surpassed the Zacks Consensus Estimate of $1.04. The figure reflects an improvement of 12.8% from the prior-year quarter.

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 under review was $1.08 billion, up from $983 million recorded in the prior-year quarter.

Revenues Improve, Costs Rise

Total revenues (GAAP basis) for the reported quarter inched up 1% year over year to $4.07 billion.

Net interest revenues, on a fully taxable-equivalent basis, were $896 million, up 5% year over year. The rise was primarily driven by higher interest rates, partly offset by lower deposits and other borrowings.

Also, net interest margin expanded 12 basis points year over year to 1.28%.

Total fee and other revenues remained almost stable at $3.17 billion as compared with the prior-year quarter. Increase in investment services fees, investment management and performance fees were offset by lower foreign exchange and other trading revenues, along with reduced investment and other income.

Total non-interest expenses were $2.74 billion, increasing 3% year over year. This reflects an increase in all expense components, except for bank assessment charges, amortization of intangible assets, distribution and servicing costs and net occupancy expenses.

Strong Asset Position

As of Sep 30, 2018, AUM was $1.8 trillion, up slightly year over year. This reflected higher market values, and was partly offset by the sale of CenterSquare Investment Management and some other changes, along with the unfavorable impact of a stronger U.S. dollar (principally versus the British pound).

Moreover, assets under custody and administration of $34.5 trillion were up 7% year over year. Higher market values and business growth largely drove the increase.

Credit Quality Improves

As of Sep 30, 2018, non-performing assets were $81 million, down from $94 million registered in the prior-year quarter end. In addition, allowance for loan losses decreased 13% year over year to $140 million. Provision for credit losses was a benefit of $3 million compared with a benefit of $6 million in the year-ago quarter.

Capital Position

As of Sep 30, 2018, common equity Tier 1 ratio (Standardized Basel 3 fully phased-in) was 11.2% compared with 10.7% as of Sep 30, 2017. Tier 1 Leverage ratio (Advanced approach) was 7%, up from 6.6% registered as of Sep 30, 2017.

Share Repurchase

During the Sep-end quarter, BNY Mellon bought back 12 million shares for $602 million.

Our Viewpoint

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

Nonetheless, concentration risk, rising 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.

Performance of Other Banks

Riding on higher revenues and lower provisions, U.S. Bancorp’s (USB - Free Report) third-quarter 2018 earnings per share of $1.06 outpaced the Zacks Consensus Estimate of $1.04. Also, results came ahead of the prior-year quarter earnings of 88 cents. Higher revenues along with loan growth and lower provisions were recorded. Though lower mortgage banking revenues and escalating expenses disappointed, easing margin pressure on rising rates and overall higher fee income acted as tailwinds.

Driven by expense management, Citigroup (C - Free Report) delivered a positive earnings surprise of 4.8% in the Jul-Sep quarter. Earnings from continuing operations per share of $1.74 for the quarter handily outpaced the Zacks Consensus Estimate of $1.66. Also, earnings climbed 22.5% year over year. Higher consumer banking, equity markets and fixed income market revenues along with loan growth were witnessed. Though investment banking revenues disappointed as strong advisory business was more than offset by lower underwriting fees on low client activity, reduced expenses and credit costs acted as tailwinds.

Reflecting high costs, Northern Trust Corporation’s (NTRS - Free Report) third-quarter 2018 earnings per share of $1.58 missed the Zacks Consensus Estimate of $1.60. Earnings compared favorably with $1.20 recorded in the year-ago quarter. Escalating operating expenses acted as a headwind in the reported quarter. However, higher revenues and strong capital position were positives. Additionally, the third quarter witnessed a rise in assets under custody, as well as assets under management. Moreover, mostly credit metrics marked a significant improvement.

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