Robust top-line growth drove
) second-quarter earnings of 23 cents per share surpassing the
Zacks Consensus Estimate of 22 cents. Also, this was up 28% from 18
cents earned in the year-ago quarter.
Our quantitative model had conclusively projected that Schwab would
beat the Zacks Consensus Estimate, as it had the right combination
of two key components - a positive
and a Zacks Rank #3 (Hold).
Better-than-expected results were attributable to strong revenue
growth, in spite of a decline in trading revenues. However, these
were partially offset by a marginal rise in operating expenses and
higher provision for loan losses. A rise in total client assets as
well as new brokerage accounts acted as tailwinds.
Net income available to common shareholders totaled $302 million,
up 30% year over year.
Performance in Detail
Net revenue was $1,478 million, up 11% from the prior-year quarter.
The rise was largely driven by higher asset management and
administration fees (up 10%), net interest revenues (up 19%) and
other revenues (up 10%), partially offset by a fall in trading
income (down 10%). The reported figure also came ahead of the Zacks
Consensus Estimate of $1,470 million.
As of Jun 30, 2014, Schwab's average interest-earning assets rose
nearly 7% year over year to $136.9 billion.
Total non-interest expense increased 1% year-over-year to $957
million. The rise was due to higher compensation and benefits,
professional services, occupancy and equipment, and communications
costs. It was, however, partly offset by lower depreciation and
amortization as well as advertising and market development
Further, provision for loan losses was $7 million, up from $1
million in the year-ago quarter.
Pre-tax profit margin improved to 35.3% from 30.8% in the
Annualized return on equity (ROE) as of Jun 30, 2014, came in at
12%, up from 10% as of Jun 30, 2013.
Other Business Developments
As of Jun 30, 2014, Schwab had total client assets of $2.40
trillion (up 17% year over year). Net new assets - bought by new
and existing clients - were $22.7 billion compared with net asset
outflows of $21.7 billion in the prior-year quarter.
Further, Schwab added 242,000 new brokerage accounts in the second
quarter. As of Jun 30, 2014, the company had a total of 9.25
million active brokerage accounts, 950,000 banking accounts and
1.34 million corporate retirement plan participants.
While the focus on low-cost capital structure will improve results
in the upcoming quarters, Schwab's financials will likely remain
pressurized due to a low interest rate environment. However, the
company has undertaken several initiatives to reduce its dependency
on interest rates. Further, we believe that synergies from the
acquisitions and a stable capital position will boost the company's
financials to some extent.
Among other major investment brokers,
) is scheduled to report third-quarter fiscal 2014 results on Jul
GFI Group Inc.
) are slated to announce second-quarter results on Jul 23 and 24,
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