Schwab (SCHW) Q3 Earnings Beat, Revenues Decline Y/Y

Charles Schwab’s SCHW third-quarter 2020 adjusted earnings of 51 cents per share beat the Zacks Consensus Estimate of 47 cents. However, the bottom line decreased 27% from the prior-year quarter.

Results reflect solid client assets balance and a rise in new brokerage accounts. These were driven by solid client activity in the coronavirus outbreak-induced volatile markets. However, lower revenues and an increase in expenses acted as headwinds.

Results excluded acquisition and integration-related costs as well as the amortization of acquired intangibles. After considering these, net income available to common shareholders (GAAP basis) was $615 million or 48 cents per share, down from $913 million or 70 cents per share recorded in the year-ago quarter.

Revenues Decline, Expenses Rise

Net revenues were $2.45 billion, down 10% year over year. The fall was due to a decline in trading revenues (down 12%) and net interest revenues (down 18%), partially offset by a 4% rise in asset management and administration fees and 31% growth in other revenues. The top line surpassed the Zacks Consensus Estimate of $2.42 billion.

Total non-interest expenses rose 6% year over year to $1.56 billion. All expense components, except for advertising and market development costs, and compensation and benefits, increased from a year ago.

Pre-tax profit margin declined to 36.3% from 45.6% in the prior-year quarter.

At the end of the third quarter, Schwab’s average interest-earning assets jumped 45% year over year to $385.6 billion.

Annualized return on equity as of Sep 30, 2020, was 10%, down from 20% at the end of the prior-year quarter.

Other Business Developments

As of Sep 30, 2020, Schwab had total client assets of $4.4 trillion (up 17% year over year). During the reported quarter, net new assets — brought by new and existing clients — were $51.2 billion, down 10%.

Schwab added 0.6 million new brokerage accounts, reflecting a 63% jump from the year-ago period. As of Sep 30, 2020, the company had 14.4 million active brokerage accounts, 1.5 million banking accounts and 1.7 million corporate retirement plan participants.

Our Take

Schwab’s inorganic growth efforts (including the acquisitions of TD Ameritrade, USAA's Investment Management Company, Wasmer Schroeder and certain assets of Motif) are expected to strengthen its position as a leading brokerage player. However, a dismal interest rate scenario will continue to hamper margins. Further, persistent rise in expenses is a concern.

The Charles Schwab Corporation Price, Consensus and EPS Surprise

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

We now look forward to the upcoming quarterly results of Interactive Brokers Group, Inc. IBKR, Raymond James Financial, Inc. RJF and LPL Financial Holdings Inc. LPLA. Interactive Brokers and Raymond James are slated to release results for the September-ended quarter on Oct 20 and Oct 28, respectively, while LPL Financial will release results on Oct 29.

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