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BNY Mellon (BK) Q2 Earnings Beat, Expenses Decrease

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The Bank of New York Mellon Corp. (BK - Free Report) reported second-quarter 2016 adjusted earnings per share of 76 cents, which outpaced the Zacks Consensus Estimate of 75 cents. However, the bottom line compared unfavorably with the prior-year quarter tally of 77 cents.

Better-than-expected results were driven by lower expenses and benefit from provisions, partly offset by a slight fall in revenues. Notably, assets under management (AUM) reflected weakness during the quarter.

After considering M&I, litigation and restructuring charges, net income applicable to common shareholders came in at $825 million or 75 cents per share compared with $830 million or 73 cents per share in the prior-year quarter.

The Bank of New York Mellon Corporation (BK - Free Report) EPS BNRI & Surprise Percent - Last 5 Quarters | FindTheCompany

Lower Revenues Offset by Fall in Costs

Total revenue (non-GAAP) declined 2% year over year to $3.77 billion. Also, the figure came in below the Zacks Consensus Estimate of $3.79 billion.

Net interest revenue, on a fully taxable equivalent basis was $780 million, down 2% year over year. The decrease was due to the negative impact of interest rate hedging activities and higher premium amortization adjustments pertaining to the decrease in interest rates.

Additionally, net interest margin fell 2 basis points to 0.98%.

Total fee and other revenues decreased 2% from the prior-year quarter to $3 billion. All the components, except total investment services fees and distribution and servicing fees, declined.

Total non-interest expenses (non-GAAP) amounted to $2.55 billion, down 2% year over year. This reflects lower expenses in nearly all categories, distribution and servicing expense and net occupancy cost.

Strong Asset Position

As of Jun 30, 2016, AUM was $1.66 trillion, down 2% year over year. This reflected net outflows primarily in 2015 and the unfavorable impact of a stronger U.S. dollar against the British pound, partly offset by higher market values.

Moreover, assets under custody and administration totaled $29.2 trillion, up 3% year over year. Net new business and higher market values were partially offset by unfavorable impact of a stronger U.S. dollar.

Asset Quality: A Mixed Bag

Non-performing assets increased significantly year over year to $289 million.

However, provision for credit losses was a benefit of $9 million, compared with a benefit of $6 million in the year-ago quarter. Also, allowance for loan losses declined 14% to $158 million.

Capital Ratios Improve

As of Jun 30, 2016, common equity tier-1 capital ratio (Standardized Basel 3 fully phased-in) came in at 10.9% compared with 10.2% as of Dec 31, 2015. Tangible common equity ratio stood at 6.6%, up from 6.5% as of Dec 31, 2015.

Share Repurchase

During the reported quarter, BNY Mellon bought back 12.5 million shares for $509 million.

Dividend Hike

Concurrent with the earnings release, the company announced a quarterly dividend of 19 cents per share, representing an increase of roughly 12% from the prior payout. The dividend will be paid on Aug 12 to shareholders of record as of on Aug 2.

Our Viewpoint

BNY Mellon’s restructuring initiatives and inorganic growth strategy will go a long way in supporting its bottom-line growth. Also, the company’s expanding client base and improved business platform are expected to provide economies of scale. However, the impact of stringent regulations and margin pressure remain matters of concern. Also, costs are anticipated to rise in the near term, led by increased litigation and restructuring expenses.

BANK OF NY MELL Price, Consensus and EPS Surprise

BANK OF NY MELL Price, Consensus and EPS Surprise | BANK OF NY MELL Quote

Currently, BNY Mellon carries a Zacks Rank #4 (Sell).

Other Major Regional Banks

Driven by higher revenues, Northern Trust Corp. (NTRS - Free Report) delivered a positive earnings surprise of 1% in the second quarter of 2016. Earnings per share came in at $1.06, which beat the Zacks Consensus Estimate by a penny.

SunTrust Banks, Inc. is slated to announce results on Jul 21, while State Street Corp. (STT - Free Report) will report on Jul 27.

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