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BNY Mellon (BK) Beats on Q3 Earnings as Fee Income Improves

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Bank of New York Mellon Corporation’s (BK - Free Report) third-quarter 2021 earnings of $1.04 per share beat the Zacks Consensus Estimate of $1.02. The bottom line represents a rise of 6% from the prior-year quarter.

Results gained from provision benefit and higher fee income. Growth in asset balances was another tailwind. However, a fall in net interest income, increase in fee waivers, and higher expenses were the undermining factors.
 
Net income applicable to common shareholders was $881 million, up 1% year over year.

Revenues & Expenses Rise

Total revenues grew 5% year over year to $4.04 billion. The top line also outpaced the Zacks Consensus Estimate of $3.97 billion.

Net interest revenues, on a fully taxable-equivalent (FTE) basis, were $644 million, down 9% year over year. The fall was mainly due to lower interest rates on interest-earning assets, partially offset by benefits from low deposit and funding rates, and higher deposit and loan balances.

Net interest margin (FTE basis) contracted 11 basis points (bps) to 0.68%.

Total fee and other revenues rose 8% to $3.39 billion. The increase was driven by higher investment services fees, foreign exchange revenues, and investment management and performance fees, partly offset by decline in financing-related fees, and distribution and servicing fees.

Money market fee waivers were $262 million, up significantly from $110 million recorded in the year-ago quarter. Excluding fee waivers, fee income increased 11%.

Total non-interest expenses (GAAP basis) were $2.92 billion, up 9%. The rise was attributable to the unfavorable impact of a weaker U.S. dollar, investments in efficiency, infrastructure and growth efforts, and higher revenue-related expenses. Excluding the litigation reserve of $72 million, expenses increased 6%.

Asset Position Strong

As of Sep 30, 2021, assets under management (AUM) were $2.3 trillion, up 13% year over year. The rise was mainly driven by higher market values, the favorable impact of a weaker U.S. dollar and net inflows.

Assets under custody and/or administration of $45.3 trillion grew 17%, reflecting higher market values, net new business, and client inflows.

Credit Quality: Mixed Bag

Allowance for loan losses as a percentage of total loans was 0.36%, down 23 bps from the prior-year quarter. The company recorded a provision benefit of $45 million against provision for credit losses of $9 million in the year-ago quarter.

As of Sep 30, 2021, non-performing assets were $108 million, up 29% year over year.

Capital Ratios Deteriorate

As of Sep 30, 2021, common equity Tier 1 ratio was 11.7%, down from 12.6% in the prior quarter. Tier 1 Leverage ratio was 5.7%, down from 6.3% on Jun 30, 2021.

Share Repurchase Update

During the reported quarter, BNY Mellon repurchased 38.1 million shares for $2 billion.

Our Take

BNY Mellon’s global reach, strong balance sheet position, and a solid AUM balance will go a long way in supporting financials. However, low interest rates and rise in expenses remain major headwinds.
 

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 Major Banks

State Street’s (STT - Free Report) third-quarter 2021 adjusted earnings of $2.00 per share outpaced the Zacks Consensus Estimate of $1.92. Also, the bottom line was 37.9% higher than the prior-year level.

Truist Financial’s (TFC - Free Report) third-quarter 2021 adjusted earnings of $1.42 per share easily surpassed the Zacks Consensus Estimate of $1.20. The bottom line jumped 46.4% from the prior-year quarter.

Bank of America’s (BAC - Free Report) third-quarter 2021 earnings of 85 cents per share beat the Zacks Consensus Estimate of 71 cents. The bottom line compared favorably with 51 cents earned in the prior-year quarter. Results in the quarter included reserve release of $1.1 billion.

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