The Charles Schwab Corp.’s (SCHW - Free Report) second-quarter 2017 earnings of 39 cents per share were in line with the Zacks Consensus Estimate. It increased 30% from the prior-year quarter.
Schwab’s shares were down nearly 1.1% in early 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, 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 $530 million, up 31% year over year.
Revenue Improvement Offset by Expense Rise
Net revenue was $2.13 billion, climbing 17% year over year, supported by asset management and administration fees (up 12%), other revenues (up 7%) and net interest revenues (up 32%). These were partly offset by a 22% fall in trading revenues. The reported figure was in line with the Zacks Consensus Estimate.
Total non-interest expenses rose 10% year over year to $1.22 billion. All expense components, except communication costs, increased on a year-over-year basis.
Provision for loan losses was nil as against $2 million in the year-ago quarter.
Fee waivers were $1 million, down 98% from the year-ago quarter.
Pre-tax profit margin improved to 42.7% from 39.4% recorded last year.
At the end of the second quarter, Schwab’s average interest-earning assets jumped 17% year over year to $215.76 billion.
Annualized return on equity as of Jun 30, 2017, came in at 15%, up from 13% a year ago.
Other Business Developments
As of Jun 30, 2017, Schwab had total client assets of $3.04 trillion (up 16% year over year). Also, net new assets – bought by new and existing clients – jumped 142% from the prior-year quarter to $64.5 billion.
In addition, Schwab added 357,000 new brokerage accounts in the reported quarter. As of Jun 30, 2017, the company had a total of 10.5 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.
Currently, Schwab carries 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 E*TRADE Financial Corp. , Raymond James Financial, Inc. (RJF - Free Report) and LPL Financial Holdings Inc. (LPLA - Free Report) , which are expected to report results on Jul 20, Jul 26 and Jul 27, respectively.
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The Charles Schwab Corp.’s (SCHW - Free Report) second-quarter 2017 earnings of 39 cents per share were in line with the Zacks Consensus Estimate. It increased 30% from the prior-year quarter.
Schwab’s shares were down nearly 1.1% in early 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, 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 $530 million, up 31% year over year.
Revenue Improvement Offset by Expense Rise
Net revenue was $2.13 billion, climbing 17% year over year, supported by asset management and administration fees (up 12%), other revenues (up 7%) and net interest revenues (up 32%). These were partly offset by a 22% fall in trading revenues. The reported figure was in line with the Zacks Consensus Estimate.
Total non-interest expenses rose 10% year over year to $1.22 billion. All expense components, except communication costs, increased on a year-over-year basis.
Provision for loan losses was nil as against $2 million in the year-ago quarter.
Fee waivers were $1 million, down 98% from the year-ago quarter.
Pre-tax profit margin improved to 42.7% from 39.4% recorded last year.
At the end of the second quarter, Schwab’s average interest-earning assets jumped 17% year over year to $215.76 billion.
Annualized return on equity as of Jun 30, 2017, came in at 15%, up from 13% a year ago.
Other Business Developments
As of Jun 30, 2017, Schwab had total client assets of $3.04 trillion (up 16% year over year). Also, net new assets – bought by new and existing clients – jumped 142% from the prior-year quarter to $64.5 billion.
In addition, Schwab added 357,000 new brokerage accounts in the reported quarter. As of Jun 30, 2017, the company had a total of 10.5 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.
Currently, Schwab carries 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 E*TRADE Financial Corp. , Raymond James Financial, Inc. (RJF - Free Report) and LPL Financial Holdings Inc. (LPLA - Free Report) , which are expected to report results on Jul 20, Jul 26 and Jul 27, respectively.
"5 Trades Could Profit ""Big-League"" from Trump Policies
If the stocks above spark your interest, wait until you look into companies primed to make substantial gains from Washington's changing course.
Today Zacks reveals 5 tickers that could benefit from new trends like streamlined drug approvals, tariffs, lower taxes, higher interest rates, and spending surges in defense and infrastructure. See these buy recommendations now >>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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