BNY Mellon (BK) Beats on Q3 Earnings as Fee Income Improves
Bank of New York Mellon Corporation’s BK 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.
The Bank of New York Mellon Corporation Price, Consensus and EPS Surprise
The Bank of New York Mellon Corporation price-consensus-eps-surprise-chart | The Bank of New York Mellon Corporation Quote
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 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 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 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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