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BNY Mellon (BK) Q1 Earnings Beat on Higher Fee Income & AUM

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The Bank of New York Mellon Corporation’s (BK - Free Report) first-quarter 2024 adjusted earnings of $1.29 per share surpassed the Zacks Consensus Estimate of $1.19. Also, the bottom line reflects a rise of 14% from the prior-year quarter.

Shares of BK have gained more than 1% pre-market trading on better-than-expected results.

Results have been primarily aided by a rise in fee revenues, particularly investment services fees. The assets under custody and/or administration (AUC/A) and assets under management (AUM) balance grew on solid market rally. However, higher expenses and a decline in net interest revenues (NIR) hurt the results. Also, the credit quality was weak in the reported quarter.

Net income applicable to common shareholders (GAAP basis) was $953 million or $1.25 per share, up from $911 million or $1.13 per share recorded in the year-ago quarter. We had projected net income applicable to common shareholders to be $682.8 million.

Revenues & Expenses Rise

Total revenues increased 3% year over year to $4.53 billion. The top line surpassed the Zacks Consensus Estimate of $4.38 billion.

NIR, on a fully taxable-equivalent (FTE) basis, was $1.04 billion, down 8% year over year. The decline reflected changes in balance sheet size and mix, partly offset by higher interest rates. Our estimate for the metric was $1.01 billion.

The net interest margin (FTE basis) contracted 10 basis points (bps) to 1.19%. Our estimate for NIM was 1.17%.

Total fee and other revenues increased 6% to $3.49 billion. The rise was driven by an increase in investment services fees, financing-related fees and distribution and servicing fees. Our estimate for the same was $3.28 billion.

Total non-interest expenses (GAAP basis) were $3.18 billion, rising 2%. Almost all cost components increased. We had projected non-interest expenses to be $3.29 billion.

Asset Balances Improve

As of Mar 31, 2024, AUM was $2.02 trillion, up 6% year over year. The rise reflected higher market values. Our estimate for AUM was $1.91 trillion.

AUC/A of $48.8 trillion increased 5%, primarily reflecting higher market values, partly offset by lower collateral management balances.

Credit Quality Deteriorates

The allowance for loan losses, as a percentage of total loans, was 0.44%, up 17 bps from the prior-year quarter. As of Mar 31, 2024, non-performing assets were $278 million, up significantly from $105 million in the last year quarter.

In the reported quarter, the company recorded a provision for credit losses of $27 million, stable with the prior-year quarter. We had expected the metric to be $51 million.

Capital Position Solid

As of Mar 31, 2024, the common equity Tier 1 ratio was 10.8%, down from 11.3% as of the Mar 31, 2023 level. Tier 1 leverage ratio was 5.9%, up from 5.8% as of Mar 31, 2023.

Share Repurchase Update

During the reported quarter, BNY Mellon repurchased shares worth $988 million.

The company’s board of directors has authorized a new share repurchase program worth $6 billion.

Our Take

High interest rates, BNY Mellon’s global footprint and a strong balance sheet position are likely to keep supporting its top-line growth. However, concentration risk due to the company’s higher dependence on fee-based revenues, rising funding costs and elevated expenses are worrisome.
 

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 Major Banks

State Street’s (STT - Free Report) first-quarter 2024 adjusted earnings of $1.69 per share surpassed the Zacks Consensus Estimate of $1.48. The bottom line increased 11.2% from the prior-year quarter.

STT’s results were primarily aided by growth in fee revenues and lower provisions. Also, the company witnessed improvements in the total assets under custody and AUM balances. However, lower NIR and higher expenses were major headwinds.

Wells Fargo’s (WFC - Free Report) first-quarter 2024 adjusted earnings per share of $1.26 surpassed the Zacks Consensus Estimate of $1.10. The adjusted figure excludes the impacts of expenses from the FDIC special assessment. In the prior-year quarter, the company reported earnings per share of $1.23.

Results have benefited from higher non-interest income. An improvement in capital ratios and a decline in provisions were other positives. However, the decrease in net interest income and loan balances and an increase in expenses were the undermining factors for WFC.


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