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Schwab's (SCHW) Q3 Earnings Beat Estimates, Revenues Down
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Charles Schwab’s (SCHW - Free Report) third-quarter 2023 adjusted earnings of 77 cents per share beat the Zacks Consensus Estimate of 75 cents. The bottom line, however, declined 30% from the prior-year quarter.
Shares of the company lost 1.6% in pre-market trading on weakness in the top line.
Results benefited from the solid performance of the asset management business. The absence of fee waivers and solid brokerage account numbers acted as tailwinds during the quarter. However, lower revenues due to higher funding costs and lower volatility posed a major headwind. The company also recorded a rise in expenses.
Results excluded acquisition and integration-related costs, amortization of acquired intangibles and restructuring costs. After considering these, net income (GAAP basis) was $1.13 billion or 56 cents per share, down from $2.02 billion or 99 cents per share in the year-ago quarter. We had projected net income (GAAP) of $1.31 billion.
Revenues Decline, Expenses Rise
Quarterly net revenues were $4.61 billion, which fell 16% year over year. The decrease was mainly due to a 50% plunge in bank deposit fees, a 24% fall in NII and a 17% slide in trading revenues. These were partly offset by a 17% increase in asset management and administration fees. The top line also missed the Zacks Consensus Estimate of $4.64 billion.
Total non-interest expenses (GAAP basis) increased 14% to $3.22 billion. We had projected this metric to be $2.98 billion. Excluding non-recurring items, expenses were $2.7 billion, up 5%.
The company has identified “a number of opportunities for increased efficiency.” Once fully realized, these strategic actions are expected to deliver at least $1 billion of incremental annual expense savings.
Pre-tax profit margin decreased to 30% from 48.7% in the prior-year quarter.
At the end of the third quarter, Schwab’s average interest-earning assets decreased 23% year over year to $453.8 billion.
Annualized return on equity, as of Sep 30, 2023, was 14%, down from 25% in the prior-year quarter.
Other Business Metrics
As of Sep 30, 2023, Schwab had total client assets of $7.82 trillion (up 18% year over year). During the reported quarter, net new assets — brought by new and existing clients — were $48.2 billion.
Schwab added 0.9 million new brokerage accounts during the quarter. As of Sep 30, 2023, the company had 34.5 million active brokerage accounts, 1.8 million banking accounts and 2.5 million corporate retirement plan participants.
Our Take
Schwab’s inorganic expansion efforts continue to strengthen its position as a leading brokerage player. Also, higher interest rates are supporting top-line growth but increasing deposit costs will weigh on it. 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 Oct 25.
Over the past 30 days, the Zacks Consensus Estimate for Raymond James’ quarterly earnings has been marginally revised lower to $2.29, suggesting a 10.1% rise from the prior-year reported number.
LPL Financial (LPLA - Free Report) is slated to announce third-quarter 2023 numbers on Oct 26.
Over the past 30 days, the Zacks Consensus Estimate for LPL Financial’s quarterly earnings has moved 3.9% lower to $3.68, implying a 17.6% increase from the prior-year reported number.
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Schwab's (SCHW) Q3 Earnings Beat Estimates, Revenues Down
Charles Schwab’s (SCHW - Free Report) third-quarter 2023 adjusted earnings of 77 cents per share beat the Zacks Consensus Estimate of 75 cents. The bottom line, however, declined 30% from the prior-year quarter.
Shares of the company lost 1.6% in pre-market trading on weakness in the top line.
Results benefited from the solid performance of the asset management business. The absence of fee waivers and solid brokerage account numbers acted as tailwinds during the quarter. However, lower revenues due to higher funding costs and lower volatility posed a major headwind. The company also recorded a rise in expenses.
Results excluded acquisition and integration-related costs, amortization of acquired intangibles and restructuring costs. After considering these, net income (GAAP basis) was $1.13 billion or 56 cents per share, down from $2.02 billion or 99 cents per share in the year-ago quarter. We had projected net income (GAAP) of $1.31 billion.
Revenues Decline, Expenses Rise
Quarterly net revenues were $4.61 billion, which fell 16% year over year. The decrease was mainly due to a 50% plunge in bank deposit fees, a 24% fall in NII and a 17% slide in trading revenues. These were partly offset by a 17% increase in asset management and administration fees. The top line also missed the Zacks Consensus Estimate of $4.64 billion.
Total non-interest expenses (GAAP basis) increased 14% to $3.22 billion. We had projected this metric to be $2.98 billion. Excluding non-recurring items, expenses were $2.7 billion, up 5%.
The company has identified “a number of opportunities for increased efficiency.” Once fully realized, these strategic actions are expected to deliver at least $1 billion of incremental annual expense savings.
Pre-tax profit margin decreased to 30% from 48.7% in the prior-year quarter.
At the end of the third quarter, Schwab’s average interest-earning assets decreased 23% year over year to $453.8 billion.
Annualized return on equity, as of Sep 30, 2023, was 14%, down from 25% in the prior-year quarter.
Other Business Metrics
As of Sep 30, 2023, Schwab had total client assets of $7.82 trillion (up 18% year over year). During the reported quarter, net new assets — brought by new and existing clients — were $48.2 billion.
Schwab added 0.9 million new brokerage accounts during the quarter. As of Sep 30, 2023, the company had 34.5 million active brokerage accounts, 1.8 million banking accounts and 2.5 million corporate retirement plan participants.
Our Take
Schwab’s inorganic expansion efforts continue to strengthen its position as a leading brokerage player. Also, higher interest rates are supporting top-line growth but increasing deposit costs will weigh on it. 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 #3 (Hold). 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 Oct 25.
Over the past 30 days, the Zacks Consensus Estimate for Raymond James’ quarterly earnings has been marginally revised lower to $2.29, suggesting a 10.1% rise from the prior-year reported number.
LPL Financial (LPLA - Free Report) is slated to announce third-quarter 2023 numbers on Oct 26.
Over the past 30 days, the Zacks Consensus Estimate for LPL Financial’s quarterly earnings has moved 3.9% lower to $3.68, implying a 17.6% increase from the prior-year reported number.