Charles Schwab Corporation
's (
SCHW
) second quarter 2012 earnings of 18 cents per share were in line
with the Zacks Consensus Estimate. However, this compares
unfavorably with the year-ago quarter's earnings of 20 cents.
After considering certain non-recurring items related to the
resolution of a vendor dispute, net income available to common
shareholders was recorded at $261 million or 20 cents per share.
This was better than the year-ago quarter's net income of $238
million or 20 cents per share.
Improved trading revenue and higher net interest income were the
positives for the quarter. However, higher operating expenses and
provision for loan losses as well as fall in asset management and
administration fees were the primary dampeners.
Behind the Headlines
Net revenue was $1,283 million, up significantly by 8% from $1,190
million in the prior-year quarter. This also compares favorably
with the Zacks Consensus Estimate of $1,229 million. The surge was
primarily due to the higher net interest revenue (up 2%) as well as
improved trading revenue (up 7%). However, these positive were
partially offset by a decline in asset management and
administration fees.
Schwab's average interest-earning assets for the reported quarter
increased about 15.5% year over year to $106.1 billion.
Total non-interest expense grew 6% year over year to $851 million.
The jump was primarily due to higher compensation and benefit
expenses along with a rise in marketing costs.
Schwab's provision for loan losses was $4 million in the quarter
under review, compared with $1 million in the previous-year
quarter.
Schwab's pre-tax profit margin improved to 33.7% from 32.4% in the
year-ago quarter.
Annualized return on equity (ROE) as of June 30, 2012, came in at
13%, down from 14% in the prior-year quarter, but up from 10% in
the prior quarter.
Other Business Developments
As of June 30, 2012, Schwab had total client assets of $1.80
trillion (up 9% year over year). Total new assets surged to $16.0
billion from $15.4 billion in the year-ago quarter. New brokerage
accounts were 221,000, growing from 205,000 in the prior-year
quarter.
As of June 30, 2012, Schwab had a total of 8.7 million active
brokerage accounts, 822,000 banking accounts and 1.52 million
corporate retirement plan participants.
Our Viewpoint
We believe that the recent acquisitions will boost Schwab's top
line to some extent, leading to an overall growth. While its focus
on low-cost capital structure will help sustain better results in
the upcoming quarters, the company's financials will continue to be
impacted by the lower trading activities and volatile interest
rates. Moreover, we remain concerned about the company's low
capital intensity relative to its peers.
Schwab currently retains a Zacks #4 Rank, which translates into a
short-term Sell rating. However, considering the fundamentals, we
maintain a long-term Neutral recommendation on the shares.
One of Schwab's peers,
E*TRADE Financial Corporation
(
ETFC
) is slated to release its second-quarter results on July 19.
E TRADE FINL CP (ETFC): Free Stock Analysis
Report
SCHWAB(CHAS) (SCHW): Free Stock Analysis Report
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