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BNY Mellon (BK) Q3 Earnings Beat Estimates as Costs Decline

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The Bank of New York Mellon Corporation’s (BK - Free Report) third-quarter 2019 earnings per share of $1.07 surpassed the Zacks Consensus Estimate of 99 cents. Moreover, the figure reflects rise of nearly 1% from the prior-year quarter.

Results benefited from a decline in expenses along with growth in assets under management (AUM). However, a decline in revenues was a headwind. Also, the company’s capital position deteriorated in the quarter.

Net income applicable to common shareholders for the quarter under review was $1 billion, down 6.8% year over year.

Revenues Decline, Costs Drop

Total revenues (GAAP basis), excluding income from consolidated investment management funds, declined 5% year over year to $3.86 billion. The figure lagged the Zacks Consensus Estimate of $3.90 billion.

Net interest revenues, on a fully taxable-equivalent basis (non-GAAP basis), were $733 million, down 18.2% year over year. The decline resulted from lower non-interest bearing deposits, higher interest-bearing deposit and funding costs, and a lease-related impairment of $70 million.

Also, non-GAAP net interest margin (FTE basis) contracted 28 basis points year over year to 1.00%.

Total fee and other revenues declined 1.3% year over year to $3.13 billion. The decrease was due to a fall in all components of fee revenues, except for total investment services fees.

Total non-interest expenses were $2.59 billion, down nearly 5.4% year over year. This reflects a decrease in all expense components, except for professional, legal and other purchased services, software and equipment, and sub-custodian and clearing costs.

Solid Asset Position

As of Sep 30, 2019, AUM was $1.9 trillion, up 2.7% year over year. This reflects higher market value, partly offset by net outflows and the unfavorable impact of stronger U.S. dollar.

Assets under custody and/or administration of $35.8 trillion grew 3.8% year over year, reflecting higher market values and net new businesses, partly offset by the unfavorable impact of stronger U.S. dollar.

Credit Quality: Mixed Bag

As of Sep 30, 2019, non-performing assets were $88 million, up from $81 million registered at the end of the prior-year quarter. Provision for credit losses in the quarter under review was a benefit of $16 million compared with a benefit of $3 million in the year-ago quarter. Allowance for loan losses declined 9.3% year over year to $127 million.

Capital Position Deteriorates

As of Sep 30, 2019, common equity Tier 1 ratio was 11.1% compared with 11.2% as of Sep 30, 2018. Tier 1 Leverage ratio was 6.6%, down from 7% registered as of Sep 30, 2018.

Capital Deployment Update

During the third quarter, BNY Mellon bought back 21.3 million shares for $981 million. Further, it paid dividends worth $294 million to common shareholders.

Our Viewpoint

The company’s restructuring initiatives and inorganic growth strategy will go a long way in supporting the bottom line. Moreover, solid asset balance is expected to support fee income growth. However, concentration risk, arising from significant dependence on fee-based income, remains a major near-term concern. Moreover, given the decline in interest rates amid the Federal Reserve’s accommodative monetary policy, its margins are likely to be negatively impacted.

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.

Earnings Release Schedule of Other Banks

Among other banks, FB Financial Corp. (FBK - Free Report) and Community Bank System (CBU - Free Report) are scheduled to release quarterly results on Oct 21 while Atlantic Capital Bancshares (ACBI - Free Report) will report earnings on Oct 24.

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