Business context and reporting period
The Bank of New York Mellon Corporation (BNY Mellon) filed this unaudited Form 10-Q for the quarter ended March 31, 2024. The global financial services company operates through Securities Services, Market and Wealth Services, Investment and Wealth Management, and Other. It reported $48.8 trillion in assets under custody and/or administration (AUC/A) and $2.02 trillion in assets under management (AUM) at quarter-end.
Key financial metrics
| Metric | Q1 2024 | Comparable period / change |
|---|---|---|
| Revenue | $4.527 billion | Up 3% year over year |
| Fee and other revenue | $3.487 billion | Up 6% year over year; fee revenue alone up 5% |
| Net interest income (NII) | $1.040 billion | Down 8% year over year |
| Net income applicable to common shareholders | $953 million | Up 5% year over year |
| Diluted earnings per share | $1.25 | Up 11% year over year |
| Pre-tax operating margin | 29% | 29% in Q1 2023 |
| Net interest margin | 1.19% | Down 10 basis points year over year |
| Provision for credit losses | $27 million | Primarily reserve increases for commercial real estate (CRE) |
| Effective tax rate | 22.4% | 23.8% in Q1 2023 |
Excluding notable items, non-GAAP net income applicable to common shareholders was $982 million and diluted EPS was $1.29; adjusted pre-tax margin was 30%. The filing identifies these as non-GAAP measures.
At March 31, 2024, total assets were $434.7 billion, deposits $309.0 billion, loans $73.6 billion, long-term debt $32.4 billion, and shareholders’ equity $40.6 billion. Available funds were $164.8 billion, 38% of total assets. Average liquidity coverage ratio (LCR) was 117% and average net stable funding ratio (NSFR) was 136%; the company reported compliance with applicable minimum requirements.
Operating cash flow was negative $2.7 billion, investing cash flow negative $26.7 billion, and financing cash flow positive $28.4 billion. Management attributed the operating and investing outflows primarily to changes in trading balances, accruals, securities, central-bank deposits and loans; financing inflows primarily reflected deposit growth. These cash-flow movements should be considered in the context of the bank’s balance-sheet and liquidity management.
Regulatory capital ratios at quarter-end included a 10.8% CET1 ratio under the Standardized Approach (11.9% at December 31, 2023), a 5.9% Tier 1 leverage ratio (6.0% at year-end), and a 7.0% supplementary leverage ratio (7.3% at year-end). BNY Mellon and its U.S. bank subsidiaries were reported as “well capitalized.”
Material changes versus comparable periods
- Revenue rose 3% year over year as fee revenue and investment and other revenue gains more than offset lower NII. Investment services fees increased 8%, while foreign exchange revenue fell 14% and investment management and performance fees were flat.
- NII declined 8% year over year, primarily due to balance-sheet mix, partly offset by higher interest rates; NIM fell 10 basis points.
- Noninterest expense increased 2% year over year to $3.176 billion, reflecting investments, severance and merit increases, partly offset by efficiency savings. Excluding notable items, expense rose 1% on a non-GAAP basis.
- AUC/A increased 5% and AUM increased 6% year over year, primarily from higher market values. AUM also had $17 billion of net inflows, including $16 billion in short-term strategies; long-term strategy inflows were $1 billion.
- Deposits rose 9% from December 31, 2023, to $309.0 billion. Loans rose to $73.6 billion, including overdrafts increasing to $7.9 billion from $3.1 billion.
- Total securities were $138.9 billion. The portfolio’s net unrealized loss, including hedges, was approximately $7.2 billion at March 31, 2024, versus $7.0 billion at year-end; management primarily attributed losses to higher interest rates.
Outlook, management commentary, risks and unusual items
- The filing provides no specific numerical earnings or revenue guidance. Management notes that results depend on market values, client activity, interest rates, deposit levels and mix, foreign-exchange volatility, and fee and product mix.
- Management described ongoing investments in growth, infrastructure and efficiency and a transition to a platforms operating model. Market and regulatory trends are increasing demand for lower-fee asset-management products, which can pressure margins, while also creating outsourcing opportunities.
- Q1 2024 notable items included $36 million of severance expense and $2 million of litigation reserves before tax. Q1 2023 included litigation reserves and a disposal loss. Q4 2023 included the FDIC special assessment, severance, litigation reserves, and a reduction in fair value of a contingent-consideration receivable; these items make sequential comparisons less representative.
- CRE exposure was $10.2 billion and unchanged from year-end. CRE accounted for 86% of the $403 million allowance for loan losses and lending-related commitments. Nonperforming assets rose to $278 million from $237 million, mainly due to nonperforming CRE loans.
- Investment Management goodwill was tested for impairment; the reporting unit’s estimated fair value exceeded carrying value by about 10%, and no impairment was recorded. Management cautions that changed assumptions or discount rates could lead to a future non-cash impairment.
- Legal matters include ongoing mortgage-securitization, Stanford-related, Brazilian Postalis and Silverado proceedings, German tax matters, and regulatory inquiries concerning communications recordkeeping and Pershing’s compliance with SEC Rule 15c3-3. For matters where an estimate was possible, reasonably possible losses aggregated up to $660 million in excess of accrued liabilities; the company could not estimate a range for certain other matters.
- In April 2024, after quarter-end, the company announced a new $6.0 billion share-repurchase authorization in addition to remaining capacity under its existing authorization. In Q1, it repurchased 17.9 million shares for $988 million and paid a $0.42 common dividend per share.
- Interest-rate sensitivity is material: the modeled 12-month NII impact of an instantaneous 100-basis-point rate increase was positive $86 million, while a 100-basis-point decrease was negative $178 million. The model assumes static deposits and no mitigating management action; actual results may differ.
Most important facts for investors to verify
- Whether fee growth and market-driven increases in AUC/A and AUM can offset continued NII and margin pressure.
- CRE asset quality, nonperforming loan trends, and whether the allowance remains adequate under weaker property values or economic conditions.
- The sustainability and composition of deposit growth, especially the sensitivity of noninterest-bearing balances and funding costs to rates and client activity.
- How the $7.2 billion securities unrealized loss, capital ratios, and continued shareholder distributions evolve as rates and balance-sheet conditions change.
- Developments in the disclosed legal and regulatory matters, including potential exposure beyond recorded reserves.
- Execution and financial impact of the new repurchase authorization, expense initiatives, and platforms operating-model transition.