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BNY Mellon (BK) Q2 Earnings & Revenues Beat, Provisions Jump

Bank of New York Mellon Corporation’s BK second-quarter 2020 earnings per share of $1.01 surpassed the Zacks Consensus Estimate of 94 cents. The figure was on par with the prior-year level.

The results benefited from growth in fee income and improvement in assets balance. However, significantly higher provisions and a slight rise in operating expenses were the undermining factors.

Net income applicable to common shareholders was $901 million, down 7% from the prior-year quarter.

Revenues & Expenses Up

Total revenues (GAAP basis), excluding income from consolidated investment management funds, increased 1% year over year to $3.96 billion. The figure marginally surpassed the Zacks Consensus Estimate of $3.95 billion.

Net interest revenues — on a fully taxable-equivalent basis (non-GAAP basis) — were $782 million, down 3% year over year. The decline was due to lower interest rates on interest-earning assets, partially offset by benefits from low deposit and funding rates, and higher deposits, yields on the securities portfolio and loan balances.

Non-GAAP net interest margin (FTE basis) contracted 24 basis points year over year to 0.88%.

Total fee and other revenues increased 2% year over year to $3.18 billion. The rise was driven by improvement in almost all fee income components except investment management and performance fees, as well as distribution and servicing fees.

Total non-interest expenses were $2.69 billion, up 1% from the prior-year quarter. The increase was mainly due to higher software and equipment costs, along with bank assessment charges. These were largely offset by Business development expenses, and distribution and servicing costs.

Solid Asset Position

As of Jun 30, 2020, assets under management were $2 trillion, up 6% year over year. This rise was mainly driven by higher market values and net inflows, partially offset by the unfavorable impact of a stronger U.S. dollar.

Assets under custody and/or administration of $35.2 trillion grew 4% year over year, reflecting higher client inflows and market values, as well as new business wins. The growth was partly offset by the unfavorable impact of a stronger U.S. dollar.

Credit Quality: Mixed Bag

As of Jun 30, 2020, non-performing assets were $88 million, down 52.7% year over year.

However, allowance for loan losses — as a percentage of total loans — was 0.55%, up 27 basis points from the prior-year quarter. Moreover, provision for credit losses was $143 million compared with provision benefit of $8 million recorded in the year-ago quarter.

Solid Capital Ratios

As of Jun 30, 2020, common equity Tier 1 ratio was 12.6% compared with 11.1% on Jun 30, 2019. Tier 1 Leverage ratio was 6.2%, down from 6.8% as of Jun 30, 2019.

Our Viewpoint

BNY Mellon’s organic growth strategy, global reach and strong balance sheet position will go a long way in supporting the bottom line. However, lower interest rates amid the Federal Reserve’s accommodative policy stance will likely hurt its financials.

The Bank of New York Mellon Corporation Price, Consensus and EPS Surprise

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 #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance & Earnings Release Schedule of Other Banks

First Republic Bank’s FRC earnings per share of $1.40 surpassed the Zacks Consensus Estimate of $1.20. Also, the bottom line climbed 12.9% from the year-ago quarter. The results were supported by an increase in net interest income. However, higher expenses, decline in fee income and elevated provisions were the offsetting factors.

State Street STT and Northern Trust NTRS are slated to announce second-quarter results on Jul 17 and Jul 22, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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