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A month has gone by since the last earnings report for The Bank of New York Mellon Corporation (BK). Shares have lost about 4.2% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is The Bank of New York Mellon Corporation due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
BNY Mellon Q1 Earnings In Line, Revenues & Costs Rise
BNY Mellon’s first-quarter 2022 earnings of 86 cents per share were in line with the Zacks Consensus Estimate. The bottom line represents a fall of 11.3% from the prior-year quarter. The reported figure includes an 8 cents per share charge related to Russia. Excluding this, adjusted earnings were 94 cents per share.
Results have been aided by a rise in net interest revenues. Growth in asset balances was another tailwind. However, a fall in fee revenues and higher expenses were the undermining factors.
Net income applicable to common shareholders (GAAP basis) was $699 million, down from $858 million recorded in the year-ago quarter.
Revenues Improve Marginally, Expenses Rise
Total revenues grew marginally year over year to $3.93 billion. The top line missed the Zacks Consensus Estimate of $3.96 billion.
Net interest revenues, on a fully taxable-equivalent (FTE) basis, were $701 million, up 6.5% year over year. The rise reflected higher interest rates on interest-earning assets, a change in asset mix and lower funding expenses, partially offset by declining interest-earning assets.
The net interest margin (FTE basis) expanded 9 basis points (bps) year over year to 0.76%.
Total fee and other revenues declined 1.2% to $3.23 billion. The fall was due to a decline in almost all components of fee revenues, except for investment and other revenues.
Total non-interest expenses (GAAP basis) were $3.01 billion, up 5.4% year over year. The rise was due to an increase in almost all cost components, except for net occupancy expenses, sub-custodian and clearing costs, costs related to the amortization of intangible assets, and other expenses.
Asset Position Strong
As of Mar 31, 2022, AUM was $2.3 trillion, up 2% year over year. The rise was mainly driven by higher market values and net inflows, partially offset by the unfavorable impact of a stronger U.S. dollar.
AUC/A of $45.5 trillion grew 9%, reflecting higher market values, net new business and net client inflows, partially offset by the unfavorable impacts of a stronger U.S. dollar.
Credit Quality: A Mixed Bag
Allowance for loan losses, as a percentage of total loans, was 0.25%, down 29 bps from the prior-year quarter.
However, the company recorded provisions for credit losses of $2 million in the reported quarter against a provision benefit of $83 million in the year-ago quarter. As of Mar 31, 2022, non-performing assets were $119 million, up 6.3% year over year.
Capital Ratios Deteriorate
As of Mar 31, 2022, common equity Tier 1 ratio was 10.1%, down from 11.2% as of Dec 31, 2021. Tier 1 leverage ratio was 5.3%, down from 5.5% as of Dec 31, 2021.
Share Repurchase Update
In the reported quarter, BNY Mellon repurchased 1.9 million shares for $118 million.
Management expects interest rates to follow the forward curve and market values to stay relatively flat to where they were at the end of the first quarter of 2022. Given this scenario, NIR is expected to be up 13% year over year.
Fee revenues are anticipated to increase 4-5%. This includes a tailwind of 5% from the reduction of fee waivers, organic growth of 1% and 1-2% headwind from the impact of Russia, market value, currency and other factors.
Excluding notable items, expenses are expected to increase 5% year over year, slightly lower than the previous guidance of a 5.5% rise.
The effective tax rate is projected to be 19%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
Currently, The Bank of New York Mellon Corporation has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, The Bank of New York Mellon Corporation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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