The Bank of New York Mellon Up 8% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for The Bank of New York Mellon Corporation BK. Shares have added about 8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is The Bank of New York Mellon due for a pullback? 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 drivers.

BNY Mellon Q1 Earnings Beat on Higher Fee Income & AUM

BNY Mellon's first-quarter 2024 adjusted earnings of $1.29 per share surpassed the Zacks Consensus Estimate of $1.19. Also, the bottom line reflects a rise of 14% from the prior-year quarter.
Results have been primarily aided by a rise in fee revenues, particularly investment services fees. The assets under custody and/or administration (AUC/A) and assets under management AUM balance grew on solid market rally. However, higher expenses and a decline in net interest revenues (NIR) hurt the results. Also, the credit quality was weak in the reported quarter.
Net income applicable to common shareholders (GAAP basis) was $953 million or $1.25 per share, up from $911 million or $1.13 per share recorded in the year-ago quarter. We had projected net income applicable to common shareholders to be $682.8 million.

Revenues & Expenses Rise

Total revenues increased 3% year over year to $4.53 billion. The top line surpassed the Zacks Consensus Estimate of $4.38 billion.
NIR, on a fully taxable-equivalent basis, was $1.04 billion, down 8% year over year. The decline reflected changes in balance sheet size and mix, partly offset by higher interest rates. Our estimate for the metric was $1.01 billion.
The net interest margin (FTE basis) contracted 10 basis points (bps) to 1.19%. Our estimate for NIM was 1.17%.
Total fee and other revenues increased 6% to $3.49 billion. The rise was driven by an increase in investment services fees, financing-related fees and distribution and servicing fees. Our estimate for the same was $3.28 billion.
Total non-interest expenses (GAAP basis) were $3.18 billion, rising 2%. Almost all cost components increased. We had projected non-interest expenses to be $3.29 billion.

Asset Balances Improve

As of Mar 31, 2024, AUM was $2.02 trillion, up 6% year over year. The rise reflected higher market values. Our estimate for AUM was $1.91 trillion.
AUC/A of $48.8 trillion increased 5%, primarily reflecting higher market values, partly offset by lower collateral management balances.

Credit Quality Deteriorates

The allowance for loan losses, as a percentage of total loans, was 0.44%, up 17 bps from the prior-year quarter. As of Mar 31, 2024, non-performing assets were $278 million, up significantly from $105 million in the last year quarter.
In the reported quarter, the company recorded a provision for credit losses of $27 million, stable with the prior-year quarter. We had expected the metric to be $51 million.

Capital Position Solid

As of Mar 31, 2024, the common equity Tier 1 ratio was 10.8%, down from 11.3% as of the Mar 31, 2023 level. Tier 1 leverage ratio was 5.9%, up from 5.8% as of Mar 31, 2023.

Share Repurchase Update

During the reported quarter, BNY Mellon repurchased shares worth $988 million.

2024 Outlook

Based on the market-implied forward interest rates and assumptions of higher investment yields, deposit margin compression and modest deposit run-off, management expects NIR to be down 10%.
Fee income is expected to improve, driven by higher organic growth, slight normalization in FX revenues and mid-single-digit equity market appreciation.
Excluding notable items, expenses are expected to be relatively stable as the effects of efficiency savings offset higher revenue-related expenses and continued investments.
Effective tax rate is expected to be between 23% and 24%.

Medium-Term Financial Targets

The company expects pre-tax margin of more than 33%. This is projected to be driven by more than 30% pre-tax margin in the Securities Services segment, 45% in the Market and Wealth Services segment and 25% in the Investment and Wealth Management segment.
Return on common tangible equity is expected to be 23% or more. Tier 1 leverage ratio is likely to be in the range of 5.5-6% and common equity Tier 1 ratio is estimated to be approximately 11%.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

At this time, The Bank of New York Mellon has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, The Bank of New York Mellon has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

The Bank of New York Mellon belongs to the Zacks Banks - Major Regional industry. Another stock from the same industry, M&T Bank Corporation MTB, has gained 11.2% over the past month. More than a month has passed since the company reported results for the quarter ended March 2024.

M&T Bank reported revenues of $2.26 billion in the last reported quarter, representing a year-over-year change of -6%. EPS of $3.09 for the same period compares with $4.09 a year ago.

M&T Bank is expected to post earnings of $3.55 per share for the current quarter, representing a year-over-year change of -30.7%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.8%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for M&T Bank. Also, the stock has a VGM Score of C.

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