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Schwab (SCHW) Beats Q1 Earnings as Trading Activity Improves


Charles Schwab’s SCHW first-quarter 2018 earnings of 55 cents per share surpassed the Zacks Consensus Estimate by a penny. Also, earnings surged 41% from the prior-year quarter.

Schwab’s shares were up more than 2% in early market trading. Rise in trading revenues was perhaps the primary reason that cheered investors. Notably, price reaction during the full trading session will provide a better idea about how investors accepted the results.

Revenue growth (driven by a rise in interest income and trading revenues) and absence of fee waivers were among the positives. Further, there was an impressive rise in total client assets and new brokerage accounts. However, higher expenses remained a headwind.

Net income available to common shareholders was $746 million, up 42% year over year.

Revenue Improvement Offset by Expense Rise

Net revenues were $2.40 billion, climbing 15% year over year. Growth was supported by asset management and administration fees (up 3%), net interest revenues (up 26%), trading revenues (up 5%) and other revenues (up 26%). The reported figure outpaced the Zacks Consensus Estimate of $2.37 billion.

Total non-interest expenses rose 13% year over year to $1.40 billion. All expense components increased on a year-over-year basis.

Fee waivers were nil in the reported quarter.

Pre-tax profit margin improved to 41.8% from 40.5% recorded last year.

At the end of the first quarter, Schwab’s average interest-earning assets grew 10% year over year to $238.5 billion.

Annualized return on equity as of Mar 31, 2018, came in at 18%, up from 15% in the year-ago quarter.

Other Business Developments

As of Mar 31, 2018, Schwab had total client assets of $3.31 trillion (up 13% year over year). Also, net new assets — brought by new and existing clients — were outflows of $18.8 billion against inflows of $38.9 billion in the prior-year quarter.

In addition, Schwab added 443,000 new brokerage accounts in the reported quarter. As of Mar 31, 2018, the company had a total of 11 million active brokerage accounts, 1.2 million banking accounts and 1.6 million corporate retirement plan participants.

Our Take

Focus on low-cost capital structure will continue supporting Schwab’s performance in the quarters ahead. Also, initiatives to strengthen market share will likely support its profitability over the long term, despite the expectation of near-term reduction in trading revenues. However, continuous rise in expenses (due to rise in compensation costs) are expected to hurt bottom-line growth.

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

We now look forward to Interactive Brokers Group, Inc. IBKR, E*TRADE Financial Corp. ETFC and TD Ameritrade Holding Corp. AMTD, which are expected to report results on Apr 17, Apr 19 and Apr 23, respectively.

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