Schwab (SCHW) Beats On Q1 Earnings, Trading Revenues Fall

The Charles Schwab Corp.’s (NYSE:SCHW) first-quarter 2017 earnings of 39 cents per share outpaced the Zacks Consensus Estimate of 37 cents. Further, it increased 34% from the prior-year quarter.

Schwab’s shares were up nearly 1.7% in pre-market trading. Notably, the price reaction during the full trading session will provide a better idea about how the investors accepted the results.

Revenue growth, primarily driven by increase in equity market volatility, lower level of fee waivers and no provisions were among the positives. Further, there was an impressive rise in total client assets and new brokerage accounts. However, higher expenses and a decline in trading revenues remained the headwinds.

Net income available to common shareholders was $564 million, up 37% year over year.

Revenue Improvement Supported Results

Net revenue was $2.08 billion, climbing 17% year over year, supported by asset management and administration fees (up 18%), other revenue (up 5%) and net interest revenue (up 30%). These were partly offset by a 17% fall in trading revenues owing to lower trading prices. Also, the reported figure beat the Zacks Consensus Estimate of $2.06 billion.

Total non-interest expense rose 12% year over year to $1.24 billion. All expense components, except communication costs, increased on a year-over-year basis.

Provision for loan losses was nil as against provision benefit of $2 million in the year-ago quarter.

Fee waivers were $8 million, down 92% from the year-ago quarter.

Pre-tax profit margin improved to 40.5% from 37.1% recorded last year.

At the end of the first quarter, Schwab’s average interest-earning assets jumped 21% year over year to $216.83 billion.

Annualized return on equity as of Mar 31, 2017, came in at 15%, up from 13% recorded a year ago.

Other Business Developments

As of Mar 31, 2017, Schwab had total client assets of $2.92 trillion (up 14% year over year). Also, net new assets – bought by new and existing clients – increased 22% from the prior-year quarter to $38.9 billion.

In addition, Schwab added 362,000 new brokerage accounts in the reported quarter. As of Mar 31, 2017, the company had a total of 10.3 million active brokerage accounts, 1.1 million banking accounts and 1.5 million corporate retirement plan participants.

Our Take

While focus on low-cost capital structure will improve Schwab’s performance in the quarters ahead, current equity market volatility is expected to continue driving its daily trading volumes. Also, initiatives to strengthen market share will likely support its profitability over the long term, despite the expectation of near-term reduction in trading revenues.

However, continuous rise in expenses remains a key concern for Schwab. Further, significant dependence on fee-based revenue streams makes us apprehensive.

The Charles Schwab Corporation Price, Consensus and EPS Surprise

The Charles Schwab Corporation Price, Consensus and EPS Surprise | The Charles Schwab Corporation Quote

Currently, Schwab has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other investment brokers, we now look forward to TD Ameritrade Holding Corporation (NASDAQ:AMTD) , E*TRADE Financial Corp. (NASDAQ:ETFC) and Raymond James Financial, Inc. (NYSE:RJF) , which are expected to report their results on Apr 19, Apr 20 and Apr 26, respectively.

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