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Schwab's (SCHW) Q1 Earnings Beat, Revenues Miss, Stock Down
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Charles Schwab’s (SCHW - Free Report) first-quarter 2023 adjusted earnings of 93 cents per share beat the Zacks Consensus Estimate of 90 cents. The bottom line also grew 21% from the prior-year quarter. Our estimate for adjusted earnings was the same as the consensus number.
The stock declined more than 3% in early market trading, reflecting investors’ bearish sentiments as market turmoil in early March hurt its financials. Also, the suspension of its share repurchase program turned investors pessimistic. The full-day trading session will display a clearer picture.
Results benefited from higher rates, which led to a rise in net interest income (NII). Thus, revenues improved despite lower bank deposit fees and higher volatility hurting trading income. Also, the absence of fee waivers and solid brokerage account numbers acted as tailwinds during the quarter. However, higher expenses were an undermining factor.
Results excluded acquisition and integration-related costs and amortization of acquired intangibles. After considering these, net income (GAAP basis) was $1.6 billion or 83 cents per share, up from $1.4 billion or 67 cents per share in the year-ago quarter. We had projected earnings per share (GAAP basis) of 80 cents.
Revenues & Expenses Rise
Quarterly net revenues were $5.12 billion, which grew 10% year over year. The increase was mainly driven by a 27% surge in NII, while a 49% plunge in bank deposit fees was the major offsetting factor. The top line, however, missed the Zacks Consensus Estimate of $5.15 billion. Our estimate for the metric was $5.3 billion.
Total non-interest expenses (GAAP basis) increased 6% to $3 billion. We had projected this metric to be $3.18 billion. Excluding non-recurring items, expenses were $2.77 billion, up 7%.
The company recorded no fee waivers in the quarter compared with $54 million in the prior-year quarter.
Pre-tax profit margin increased to 41.2% from 39.4% in the prior-year quarter. Our estimate for the metric was 40%.
At the end of the first quarter, Schwab’s average interest-earning assets decreased 20% year over year to $504.6 billion.
Annualized return on equity, as of Mar 31, 2023, was 23%, up from 12% in the prior-year quarter.
Other Business Metrics
As of Mar 31, 2023, Schwab had total client assets of $7.58 trillion (down 4% year over year). During the reported quarter, net new assets — brought by new and existing clients — were $150.7 billion.
Schwab added 1.04 million new brokerage accounts during the quarter. As of Mar 31, 2023, the company had 34.1 million active brokerage accounts, 1.7 million banking accounts and 2.4 million corporate retirement plan participants.
Share Repurchase Update
Schwab temporarily suspended its share repurchase program amid the ambiguity in the sector.
Our Take
Schwab’s inorganic expansion efforts are expected to strengthen its position as a leading brokerage player. Also, higher interest rates are supporting top-line growth. However, mounting expenses and expectations of an economic slowdown are major headwinds.
The Charles Schwab Corporation Price, Consensus and EPS Surprise
Earnings Release Dates of Other Investment Brokers
Raymond James (RJF - Free Report) is scheduled to announce quarterly numbers on Apr 26.
Over the past 30 days, the Zacks Consensus Estimate for Raymond James’ quarterly earnings has been revised 1.3% lower to $2.20, suggesting a 41.9% jump from the prior-year reported number.
LPL Financial (LPLA - Free Report) is slated to announce fourth-quarter and full-year 2022 numbers on Apr 27.
Over the past week, the Zacks Consensus Estimate for LPL Financial’s quarterly earnings has moved 4.8% lower to $4.35, implying a 123.1% jump from the prior-year reported number.
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Schwab's (SCHW) Q1 Earnings Beat, Revenues Miss, Stock Down
Charles Schwab’s (SCHW - Free Report) first-quarter 2023 adjusted earnings of 93 cents per share beat the Zacks Consensus Estimate of 90 cents. The bottom line also grew 21% from the prior-year quarter. Our estimate for adjusted earnings was the same as the consensus number.
The stock declined more than 3% in early market trading, reflecting investors’ bearish sentiments as market turmoil in early March hurt its financials. Also, the suspension of its share repurchase program turned investors pessimistic. The full-day trading session will display a clearer picture.
Results benefited from higher rates, which led to a rise in net interest income (NII). Thus, revenues improved despite lower bank deposit fees and higher volatility hurting trading income. Also, the absence of fee waivers and solid brokerage account numbers acted as tailwinds during the quarter. However, higher expenses were an undermining factor.
Results excluded acquisition and integration-related costs and amortization of acquired intangibles. After considering these, net income (GAAP basis) was $1.6 billion or 83 cents per share, up from $1.4 billion or 67 cents per share in the year-ago quarter. We had projected earnings per share (GAAP basis) of 80 cents.
Revenues & Expenses Rise
Quarterly net revenues were $5.12 billion, which grew 10% year over year. The increase was mainly driven by a 27% surge in NII, while a 49% plunge in bank deposit fees was the major offsetting factor. The top line, however, missed the Zacks Consensus Estimate of $5.15 billion. Our estimate for the metric was $5.3 billion.
Total non-interest expenses (GAAP basis) increased 6% to $3 billion. We had projected this metric to be $3.18 billion. Excluding non-recurring items, expenses were $2.77 billion, up 7%.
The company recorded no fee waivers in the quarter compared with $54 million in the prior-year quarter.
Pre-tax profit margin increased to 41.2% from 39.4% in the prior-year quarter. Our estimate for the metric was 40%.
At the end of the first quarter, Schwab’s average interest-earning assets decreased 20% year over year to $504.6 billion.
Annualized return on equity, as of Mar 31, 2023, was 23%, up from 12% in the prior-year quarter.
Other Business Metrics
As of Mar 31, 2023, Schwab had total client assets of $7.58 trillion (down 4% year over year). During the reported quarter, net new assets — brought by new and existing clients — were $150.7 billion.
Schwab added 1.04 million new brokerage accounts during the quarter. As of Mar 31, 2023, the company had 34.1 million active brokerage accounts, 1.7 million banking accounts and 2.4 million corporate retirement plan participants.
Share Repurchase Update
Schwab temporarily suspended its share repurchase program amid the ambiguity in the sector.
Our Take
Schwab’s inorganic expansion efforts are expected to strengthen its position as a leading brokerage player. Also, higher interest rates are supporting top-line growth. However, mounting expenses and expectations of an economic slowdown are major headwinds.
The Charles Schwab Corporation Price, Consensus and EPS Surprise
The Charles Schwab Corporation price-consensus-eps-surprise-chart | The Charles Schwab Corporation Quote
Currently, Schwab carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings Release Dates of Other Investment Brokers
Raymond James (RJF - Free Report) is scheduled to announce quarterly numbers on Apr 26.
Over the past 30 days, the Zacks Consensus Estimate for Raymond James’ quarterly earnings has been revised 1.3% lower to $2.20, suggesting a 41.9% jump from the prior-year reported number.
LPL Financial (LPLA - Free Report) is slated to announce fourth-quarter and full-year 2022 numbers on Apr 27.
Over the past week, the Zacks Consensus Estimate for LPL Financial’s quarterly earnings has moved 4.8% lower to $4.35, implying a 123.1% jump from the prior-year reported number.