BNY Mellon Beats Q3 Earnings Despite Lower Revenues
The Bank of New York Mellon Corp.’s (BK - Analyst Report) third-quarter 2014 adjusted earnings per share of 64 cents came in 4.9% above the year-ago adjusted figure. Moreover, reported earnings surpassed the Zacks Consensus Estimate of 61 cents, marking the seventh consecutive quarter of earnings beat for the company.
Higher fee and other revenues along with consistent growth in assets under management (AUM) were the growth drivers. However, pressurized top line and escalating expenses were the weakening factors. Asset quality improved during the quarter.
Net income applicable to common shareholders (adjusted for the previously disclosed gains net of litigation and restructuring charges) totaled $734 million compared with $713 million in the prior-year quarter. The year-ago quarter earnings were adjusted for the benefit related to certain tax matters net of litigation and restructuring charges.
The Bank Of New York Mellon Corporation - Earnings Surprise | FindTheBest
Quarterly Performance
BNY Mellon’s total revenue declined 1% year over year to $3.75 billion. Moreover, it missed the Zacks Consensus Estimate of $4.01 billion.
Net interest revenues on a fully taxable equivalent basis stood at $736 million, down 6% year over year. The fall was mainly due to lower yields on investment securities, which was however partially offset by higher average deposits. Moreover, net interest margin declined 22 basis points to 0.94%.
Total fee and other revenues rose 29% year over year to $3.85 billion, triggered by a substantial rise in investment and other income as well as higher investment services fees. These were, nevertheless, partially offset by a reduction in foreign exchange and other trading revenues as well as net securities gain.
Total non-interest expenses amounted to $2.97 billion, up 7% year over year. The rise was primarily driven by a surge in merger and integration, litigation and restructuring charges as well as higher professional, legal and other purchased services. However, these were partly mitigated by lower staff as well as amortization of intangible assets costs.
AUM grew 7% year over year to $1.65 trillion as of Sep 30, 2014. Moreover, assets under custody and administration totaled $28.3 trillion, increasing 3% year over year. Higher equity market values and net new business led to the growth in both.
Asset Quality
BNY Mellon’s credit quality improved during the quarter. Non-performing assets fell 15% year over year to $147 million. Moreover, allowance for loan losses declined 7% to $191 million.
Further, provision for credit losses witnessed a benefit of $19 million compared to a charge of $2 million in the prior-year quarter.
Capital Ratios
BNY Mellon’s capital ratios remained strong. At the end of the reported quarter, the company’s common equity tier 1 capital ratio (Standardized Basel 3 Transition) came in at 10.8% compared with 10.1% as of Sep 30, 2014. Tangible common equity ratio stood at 6.5% compared with 6.3% at the end of the prior-year quarter.
Capital Deployment Activities
Concurrent with the earnings release, the bank declared a quarterly common dividend of 17 cents per share. During the reported quarter, BNY Mellon bought back 11.0 million shares for $431 million.
Our Viewpoint
BNY Mellon remains well positioned for future growth on the back of its improving credit quality and strengthening asset position. Moreover, the bank’s enhanced capital deployment activities continue to boost investors’ confidence in the stock.
However, strained revenues due to the prevailing low interest rate environment as well as stringent regulatory landscape will likely hamper profitability going forward.
Currently, BNY Mellon carries a Zacks Rank #3 (Hold).
Other Major Banks
Among other major regional banks, BB&T Corp. (BBT - Analyst Report) posted third-quarter earnings per share of 71 cents, in line with the Zacks Consensus Estimate.
JPMorgan Chase & Co. (JPM - Analyst Report) reported third-quarter earnings per share of $1.62, outpacing the Zacks Consensus Estimate of $1.39 on the back of top-line strength.
Moreover, BankUnited, Inc. (BKU - Analyst Report) is scheduled to report third-quarter earnings on Oct 23.
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