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Schwab Beats Q1 Earnings on Strong Revs - Analyst Blog

By: Zacks.com
Posted: 4/15/2014 12:36:00 PM
Referenced Stocks: ETFC;EVR;RJF;SCHW

Higher revenues as well as prudent expense management drove Charles Schwab Corp. 's ( SCHW ) first-quarter earnings of 24 cents per share, which surpassed the Zacks Consensus Estimate of 22 cents. Moreover, this was up 60% from 15 cents earned in the year-ago quarter.

Shares of Schwab rose more than 2% in the pre-market session, reflecting investors' bullish stance following the results. The stock's price movement during the trading session will give a better idea as to whether Schwab has been able to meet expectations.

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 Earnings ESP and a Zacks Rank #3 (Hold).

Better-than-expected results were driven by top-line growth and almost flat operating expenses, partially offset by decline in benefit from provisions. Further, rise in total client assets as well as new brokerage accounts were the other tailwinds.

Net income available to common shareholders in the reported quarter totaled $318 million, up 61% year over year.

Quarterly Highlights

Net revenue was $1,478 million, up 15% from $1,290 million in the prior-year quarter. The rise was largely driven by higher asset management and administration fees (up 11%), net interest revenues (up 18%), trading revenues (up 11%) and other revenues (up 21%). The reported figure also came ahead of the Zacks Consensus Estimate of $1,466 million.

As of Mar 31, 2014, Schwab's average interest-earning assets rose nearly 9% year over year to $137.1 billion.

Total non-interest expense was almost flat on a year-over-year basis and stood at $956 million. Rise in professional services, occupancy and equipment, communications costs and other expenses was offset by a fall in compensation and benefit, advertising and market development as well as depreciation and amortization expenses.

Further, provision for loan losses was a benefit of $1 million, down from a benefit of $6 million in the previous-year quarter.

Pre-tax profit margin improved to 35.3% in the reported quarter from 25.7% in the prior-year quarter.

Annualized return on equity (ROE) as of Mar 31, 2014, came in at 13%, up from 9% as of Mar 31, 2013.

Other Business Developments

As of Mar 31, 2014, Schwab had total client assets of $2.31 trillion (up 11% year over year). Net new assets - bought by new and existing clients - were $34.2 billion, down 21% from $43.1 billion reported in the year-ago quarter.

Further, Schwab added 258,000 new brokerage accounts in the first quarter. As of Mar 31, 2014, the company had a total of 9.18 million active brokerage accounts, 933,000 banking accounts and 1.34 million corporate retirement plan participants.

Our Take

While the focus on low-cost capital structure will improve results in the coming quarters, Schwab's financials will likely suffer due to a low interest rate environment. However, the company has undertaken several initiatives to become less dependent 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 investment brokers, E*TRADE Financial Corp. ( ETFC ) and Evercore Partners Inc. ( EVR ) are scheduled to announce first-quarter results on Apr 23 while Raymond James Financial, Inc. ( RJF ) will release second-quarter fiscal earnings on the same date as that of the above-mentioned companies.



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SCHWAB(CHAS) (SCHW): Free Stock Analysis Report

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