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Bank of New York Mellon Corporation’s (BK Quick Quote BK - Free Report) first-quarter 2021 earnings per share of 97 cents surpassed the Zacks Consensus Estimate of 87 cents. However, the figure represents a decline of 7.6% from the prior-year quarter’s level.

In the reported quarter, the company recorded a provision benefit, which was a major positive. Also, growth in asset balances was a tailwind. However, a decline in revenues and higher expenses were the undermining factors.

Net income applicable to common shareholders was $858 million, down from $944 million recorded in the prior-year quarter.

Revenues Decline, Expenses Rise

Total revenues declined 4.6% year over year to $3.92 billion. However, the figure surpassed the Zacks Consensus Estimate of $3.84 billion.

Net interest revenues, on a fully taxable-equivalent basis (non-GAAP basis), were $658 million, down 19.4% 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, higher deposits, and a larger securities portfolio.

Non-GAAP net interest margin (FTE basis) contracted 34 basis points (bps) year over year to 0.67%.

Total fee and other revenues declined marginally year over year to $3.27 billion. The fall was due to a decline in investment and other income, foreign exchange revenues, financing-related fees, and distribution and servicing fees.

Total non-interest expenses were $2.85 billion, up 5.1% from the prior-year quarter. The rise was due to an increase in staff expenses, software and equipment costs, costs related to professional, legal, and other purchased services, sub-custodian and clearing costs, and other expenses.

Asset Position Strong

As of Mar 31, 2021, assets under management (AUM) were $2.2 trillion, up 22.8% 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 $41.7 trillion grew 18.5% year over year, reflecting higher market values, net new business and the favorable impact of a weaker U.S. dollar.

Credit Quality: A Mixed Bag

As of Mar 31, 2021, non-performing assets were $112 million, up 27.3% year over year. Also, allowance for loan losses — as a percentage of total loans — was 0.54%, up 32 bps from the prior-year quarter.

However, in the reported quarter, the company recorded a provision benefit of $83 million against provision for credit losses of $169 million in the year-ago quarter.

Capital Ratios Worsen

As of Mar 31, 2021, the common equity Tier 1 ratio was 12.6% compared with 13.1% on Dec 31, 2020. Tier 1 Leverage ratio was 5.8%, down from 6.3% on Dec 31, 2020.

Our Viewpoint

BNY Mellon’s global reach, strong balance sheet position, and solid AUM balance will go a long way in supporting profitability. However, near-zero interest rates will likely continue to hurt margins in the near term.

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 #3 (Hold). 

Earnings Schedule of Other Banks

KeyCorp (KEY Quick Quote KEY - Free Report) is scheduled to release results on Apr 20. SVB Financial Group (SIVB Quick Quote SIVB - Free Report) and East-West Bancorp (EWBC Quick Quote EWBC - Free Report) are scheduled to announce quarterly numbers on Apr 22.