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Schwab (SCHW) Q1 Earnings Meets Expectation; Stock Up

The Charles Schwab Corp.’s SCHW first-quarter 2016 earnings of 29 cents per share were in line with the Zacks Consensus Estimate. Further, it was up 32% from the prior-year quarter figure.


Schwab’s shares gained nearly 1% in early market trading, indicating investors’ optimism regarding continued top-line improvement. However, price reaction during the full trading session will provide a better idea about investors’ reaction.

Revenue growth, primarily driven by increased equity market volatility, and benefit from provisions acted as the tailwinds. Also, there was a significant increase in total client assets and new brokerage accounts. However, higher expenses remained a concern.

Net income available to common shareholders for the reported quarter totaled $392 million, up 35% year over year.

Performance in Detail

Net revenue was $1,764 million, up 16% year over year, supported by asset management and administration fees (up 9%), net interest revenue (up 31%), trading revenues (up 2%) and stable other revenue. The reported figure surpassed the Zacks Consensus Estimate of $1,745 million.

Total non-interest expense rose 6% year over year to $1,109 million. All expense components increased on a year-over-year basis.

Provision for loan losses was a reversal of $2 million, compared with provision of $4 million recorded in the year-ago quarter.

Fee waivers were $97 million, down 47% from the year-ago quarter.

Pre-tax profit margin improved to 37.1% from 31.7% recorded last year.

As of Mar 31, 2016, Schwab’s average interest-earning assets rose approximately 20% year over year to $179.1 billion.

Annualized return on equity (“ROE”) as of Mar 31, 2016, came in at 13%, up from 10% recorded a year ago.

Other Business Developments

As of Mar 31, 2016, Schwab had total client assets of $2.56 trillion (up 1% year over year). Net new assets – bought by new and existing clients – were $32 billion during the quarter.

Also, Schwab added 265,000 new brokerage accounts in the first quarter. As of Mar 31, 2016, the company had a total of 9.9 million active brokerage accounts, 1.0 million banking accounts and 1.5 million corporate retirement plan participants.

Our Take

While focus on low-cost capital structure will improve Schwab’s performance in the quarters ahead, current equity market volatility is expected to drive up the company’s daily trading volumes. Also, the company has undertaken several initiatives to lower its dependency on interest rates. Further, we believe that a stable capital position will boost its financials.

Currently, Schwab has a Zacks Rank #3 (Hold).

Among other investment brokers, Interactive Brokers Group, Inc. IBKR will report on Apr 19, Raymond James Financial, Inc. RJF is slated to report on Apr 20 and E*TRADE Financial Corp. ETFC on Apr 21.

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