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Schwab (SCHW) Beats on Q3 Earnings as Revenues Improve
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The Charles Schwab Corp.’s (SCHW - Free Report) third-quarter 2016 adjusted earnings of 34 cents per share beat the Zacks Consensus Estimate by a penny. Results excluded litigation proceeds of nearly $14 million, related to the company’s non-agency residential mortgage-backed securities portfolio.
Revenue growth, primarily driven by increase in equity market volatility, lower level of fee waivers and stable provisions acted as tailwinds. Also, there was a significant rise in total client assets and new brokerage accounts. However, higher expenses remained a concern.
After considering the above-mentioned litigation proceeds, net income available to common shareholders totaled $470 million, up 29% year over year.
Net revenue was $1.91 billion, up 20% year over year, supported by asset management and administration fees (up 20%), net interest revenue (up 33%) and other revenues (up 15%). These were partly offset by a 17% fall in trading revenues. Also, the reported figure surpassed the Zacks Consensus Estimate of $1.88 billion.
Total non-interest expense rose 10% year over year to $1.12 billion. All expense components, except communication costs, increased on a year-over-year basis.
Provision for loan losses was $5 million, in line with the year-ago quarter figure.
Fee waivers were $41 million, down 75% from the year-ago quarter.
Pre-tax profit margin improved to 41.5%, from 36.5% recorded last year.
As of Sep 30, 2016, Schwab’s average interest-earning assets grew 21% year over year to $194.9 billion.
Annualized return on equity as of Sep 30, 2016, came in at 14%, up from 13% recorded a year ago.
Other Business Developments
As of Sep 30, 2016, Schwab had total client assets of $2.73 trillion (up 13% year over year). However, net new assets – bought by new and existing clients – declined 3% from the prior-year quarter to $30.0 billion.
Also, Schwab added 264,000 new brokerage accounts in the third quarter. As of Sep 30, 2016, the company had a total of 10.0 million active brokerage accounts, 1.1 million banking accounts and 1.6 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 drive the company’s daily trading volumes. Also, the company has undertaken several initiatives to lower its dependency on interest rates. Further, we believe that a stable capital position will boost its financials.
Among other investment brokers, Interactive Brokers Group, Inc. (IBKR - Free Report) , TD Ameritrade Holding Corp. (AMTD - Free Report) and Raymond James Financial, Inc. (RJF - Free Report) are scheduled to report their results on Oct 18, Oct 25 and Oct 26.
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Schwab (SCHW) Beats on Q3 Earnings as Revenues Improve
The Charles Schwab Corp.’s (SCHW - Free Report) third-quarter 2016 adjusted earnings of 34 cents per share beat the Zacks Consensus Estimate by a penny. Results excluded litigation proceeds of nearly $14 million, related to the company’s non-agency residential mortgage-backed securities portfolio.
Revenue growth, primarily driven by increase in equity market volatility, lower level of fee waivers and stable provisions acted as tailwinds. Also, there was a significant rise in total client assets and new brokerage accounts. However, higher expenses remained a concern.
After considering the above-mentioned litigation proceeds, net income available to common shareholders totaled $470 million, up 29% year over year.
Revenue Improvement Supported Results
Net revenue was $1.91 billion, up 20% year over year, supported by asset management and administration fees (up 20%), net interest revenue (up 33%) and other revenues (up 15%). These were partly offset by a 17% fall in trading revenues. Also, the reported figure surpassed the Zacks Consensus Estimate of $1.88 billion.
Total non-interest expense rose 10% year over year to $1.12 billion. All expense components, except communication costs, increased on a year-over-year basis.
Provision for loan losses was $5 million, in line with the year-ago quarter figure.
Fee waivers were $41 million, down 75% from the year-ago quarter.
Pre-tax profit margin improved to 41.5%, from 36.5% recorded last year.
As of Sep 30, 2016, Schwab’s average interest-earning assets grew 21% year over year to $194.9 billion.
Annualized return on equity as of Sep 30, 2016, came in at 14%, up from 13% recorded a year ago.
Other Business Developments
As of Sep 30, 2016, Schwab had total client assets of $2.73 trillion (up 13% year over year). However, net new assets – bought by new and existing clients – declined 3% from the prior-year quarter to $30.0 billion.
Also, Schwab added 264,000 new brokerage accounts in the third quarter. As of Sep 30, 2016, the company had a total of 10.0 million active brokerage accounts, 1.1 million banking accounts and 1.6 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 drive the company’s daily trading volumes. Also, the company has undertaken several initiatives to lower its dependency on interest rates. Further, we believe that a stable capital position will boost its financials.
SCHWAB(CHAS) Price, Consensus and EPS Surprise
SCHWAB(CHAS) Price, Consensus and EPS Surprise | SCHWAB(CHAS) Quote
Currently, Schwab has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other investment brokers, Interactive Brokers Group, Inc. (IBKR - Free Report) , TD Ameritrade Holding Corp. (AMTD - Free Report) and Raymond James Financial, Inc. (RJF - Free Report) are scheduled to report their results on Oct 18, Oct 25 and Oct 26.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>