Charles Schwab Corporation’s (SCHW) second-quarter 2013 earnings of 19 cents per share missed the Zacks Consensus Estimate by a penny. Moreover, this was below 20 cents earned in the year-ago quarter.
Lower-than-expected results were due to increased operating expenses, partially offset by top-line growth and a benefit from provision. However, improvements in total client assets as well as new brokerage accounts were the tailwinds.
Net income available to common shareholders in the first quarter totaled $233 million, down 11% year over year.
Quarterly Performance
Net revenues were $1,337 million, up 10% from $1,213 million in the prior-year quarter. The year-ago quarter figure excludes the one-time gain that the company recorded. After taking the one-time gain in consideration, net revenues improved 4%. Moreover, this was higher than the Zacks Consensus Estimate of $1,316 million.
The increase in net revenue was largely driven by a rise in asset management and administration fees (up 15%), net interest revenues (up 3%) and trading revenues (up 7%). However, these were partially offset by lower other revenues (down 51%).
As of Jun 30, 2013, Schwab’s average interest-earning assets augmented nearly 20% year over year to $127.6 billion.
Total non-interest expense grew 9% year over year to $925 million. The increase was primarily due to a rise in compensation and benefit expenses as well as advertising and market development costs. Further, provision for loan losses was a credit of $1 million, compared with a $4 million provision in the previous-year quarter.
Pre-tax profit margin fell to 30.8% in the reported quarter from 33.7% in the prior-year quarter.
Annualized return on equity (ROE) as of Jun 30, 2013, came in at 10%, down from 13% as of Jun 30, 2012.
Other Business Developments
As of Jun 30, 2013, Schwab had total client assets of $2.05 trillion (up 14% year over year). Net new assets – bought by new and existing clients – were negative $21.7 billion, compared with $16.0 billion reported in the year-ago quarter.
Further, Schwab added 243,000 new brokerage accounts in the second quarter. As of Jun 30, 2013, the company had a total of 9.0 million active brokerage accounts, 910,000 banking accounts and 1.6 million corporate retirement plan participants.
Our Viewpoint
While focusing on low-cost capital structure will improve results in the coming quarters, Schwab’s financials will continue to suffer due to a fall in trading activities and reduced interest rate yields.
Moreover, we remain concerned about Schwab’s low capital intensity as compared to its peers. Nevertheless, we believe that the synergies from the acquisitions and stable capital position will boost the company’s financials to some extent.
Schwab currently carries a Zacks Rank #3 (Hold).
Among other investment brokers, Piper Jaffray (PJC) is scheduled to announce results on Jul 17 and E*TRADE (ETFC) on Jul 24, while TD Ameritrade (AMTD) will announce fiscal third-quarter results on Jul 23.
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